Captive vs. Independent: Which Is the Right Path for You?

February 2, 2017
By: Voldico

As a new insurance agent, should you go the captive or independent route? Which one is easier for you, and is easier really the better choice? Read on to learn about the pros and cons of each type of business model, so you can choose the right side in the captive vs independent insurance agent debate.

In the world of insurance professionals, there are generally two kinds of agents: captive agents and non-captive, or independent agents. Most customers don't think much about that, but for the agent it can make a significant difference in how they handle their business and build their customer base.

To help you discover which direction is best for you, we investigated the pros and cons of both agency business models. With some good information, you can determine which path makes the most sense for your future as an insurance agent.

Pros and Cons of Being a Captive Agent

What Is a Captive Insurance Agent?

A Captive Insurance Agent is contracted to work exclusively with one specific insurance carrier. While some captive agents belong to affiliated groups of their parent company, the captive agent's priority is to develop business for the parent company. That means the agent can only sell products and services from the parent company or affiliated group.

The carriers with the largest number of captive insurance agents include State Farm, Allstate, Farmers Insurance Group, and American Family Insurance. Agents for these carriers don't sell policies from any other carriers to their customers.

For customers that are looking for products from the biggest, most widely known carriers, finding a captive agent can be the right choice. For the agent, though, there are both good and bad points to consider when deciding whether to be a captive vs independent insurance agent.

The Pros

  • Captive agents are provided with financial support (or allowances) to help get their business off the ground, including funds for office space, employee benefits, and other overhead expenses. 
  • Parent companies also provide agents with resources and guidance, including client and lead referrals, product training, marketing and advertising tools, and promotional campaigns. 
  • Agents develop a deep knowledge of all insurance products offered by their specific carrier.
  • As a captive agent, there is a more reliable and stable source of income, paid out through the parent company directly.

The Cons

  • Your main goal is to build business for the parent company, which can limit your agency’s resale value and target audience. 
  • Captive agents are limited in the products they offer since they can only sell products the carrier provides.
  • Parent companies often push certain policies over others and require agents to meet strict sales quotas.
  • If the parent company discontinues selling certain lines or increases the rates on specific types of insurance, it could result in the loss of clients.

Pros and Cons of Being an Independent Agent

What Is An Independent Insurance Agent? 

An Independent Insurance Agent is not contracted to work with just one single insurance company. Rather, they contract with multiple insurance companies, selling diverse lines of insurance coverage on a non-exclusive basis.

Freedom can be important, but it may come at the cost of some level of security. As you ponder the captive vs independent insurance agent question, think about all the areas that can be affected by your decision.

The Pros

  • As an independent agent, your main goal is to grow your agency by building your book of business and offering a variety of options to your customers.
  • Independent agents generally make a higher percentage of commission than captive agents.
  • There is freedom from the strict regulations of a parent company.
  • You have the capacity to cross-sell into other lines of insurance, allowing you to offer many products with price comparisons and competitive quotes.
  • Being independent from all carriers allows you to evaluate different insurance policies objectively.

The Cons

  • You pay your own expenses and administrative costs and use personal investments to start your business. 
  • There is no support, guidance, or resources from a parent company or fellow agents.
  • Profits from sales are generally put back into the business for the first year, to help offset startup costs and lead generation.
  • You have to build your book of business from scratch and may have trouble obtaining contracts or “appointments” with desirable carriers. 
  • Your work will be primarily commission-based, so a steady stream of income is not guaranteed.

Is a Captive or Independent Agency Right for Me?

There are positives and negatives to both models, so it really comes down to individual needs and goals. 

Independent agents tend to make a higher income, but at a higher risk. Captive agents have more stability and support, but with stricter limitations. Both of those options can be good ones, but it generally depends on the specifics the agent is looking for.

If you really want to be more independent, and have the opportunity for a lot of expanded business in the future, working with a specific carrier might not be for you. On the other hand, agents looking for security and more peace of mind could benefit from choosing a captive agent status. With plenty of knowledge and information, you can pick the one that meets your needs.

Finally, when making your decision, also assess joining an insurance cluster or network. An insurance network is a formal association of insurance agencies established to provide members with mutual support and group benefits. A cluster or network is essentially a master agency, with a group of retail agents beneath it (under one master code). You get the membership benefits of a top-notch insurance network, without losing your status as an independent agent. 

Being a new agent in today’s competitive marketplace is not easy. If you need help getting your agency off the ground, check out the many benefits of joining an insurance network like Voldico.