The personal package policy of car and homeowner insurance has been a great product for carriers who can use multi- line premiums to boost balance sheets and improve retention, as well as for customers who receive discounts to increase their business with the carrier.
But because of the ease of doing business on the web and the use of smartphones for purchases sounds like the death kick of this business practice for the carriers and their agents, according to a recent article in Best’s Review. As customers are more easily able to compare prices online, and car insurance is especially commodified, the delinking of home and car is bound to happen more in the days to come.
It is a major disadvantage for captive agents because they can only sell one product line, but Best claims that the number of captive agents will be reduced as they are transformed into self- employed agents to represent many carriers. In this way, the results will be considerable for all agents in the insurance industry.
Is it a good time to move from the captive to independent insurance system?
You be the judge. To help you decide, we’ve laid out all the basic information you might need about both captive and independent agent.
Pros and Cons of Being a Captive Agent
- A more reliable, more stable source of income is available as a captive agent, paid directly via the parent company.
- Financial support is provided to captive agents to help get their business off the ground— including office space funds, employee benefits and other overhead expenses.
- The parent companies also provide resources and guidance to agents, including customer referrals and lead referrals, product training, marketing & advertising tools, and promotional campaigns.
- Agents develop a strong understanding of all insurance products offered by the company.
- Your main goal is to build a business for the parent company that can limit the resale value and target audience of your agency.
- Captive agents are limited in the products they offer, as they can only sell the products supplied by the carrier.
- Parent companies often push certain policies over others and require agents to comply with strict sales quotas.
- If the parent company stops selling certain lines or increases the rates for specific types of insurance, the loss of clients may occur.
Pros and Cons of Being an Independent Agent
- There is freedom from the strict parent company regulations.
- As an independent agent, your main goal is to grow your agency by building your business book and offering your customers a variety of options.
- Independent agents usually have a higher commission percentage than captive agents.
- You can objectively assess different insurance policies, being independent of all carriers.
- You are able to cross- sell into other insurance lines so that you can offer many products with price comparisons and competitive quotes.
- You pay for your own administrative and expenses and use your own personal investment to set- up the business.
- The parent company does not provide support, guidance or resources.
- Sales profit is usually returned for the first year to the company— to compensate the costs of startups and lead generation.
- Your business book needs to be built from scratch and contracts and appointments with the desired carriers can be difficult to obtain.
- Primarily commission-based, so a steady stream of income is not guaranteed.
Is a Captive or Independent Agency Right for Me?
All in all, both models have positive and negative aspects, so that it really depends on individual needs and objectives. Independent agents tend to generate higher revenues, but at greater risk. Captive agents have greater stability and support, but more restrictive limits. Finally, evaluate joining an insurance cluster or network when making your decision. An insurance network is a formal association of insurance agencies set up to offer mutual assistance and group benefits to members. A cluster or network is essentially a master agency (under one master code) with a group of retail agents under it. You get the benefits of a top- notch insurance network without losing your status as an independent agent.
It’s not easy to be a new agent on the competitive market today. If you need help to get your agency off the ground, see the many advantages of joining an insurance cluster.