WHAT IS AN INDEPENDENT INSURANCE AGENT?
Independent agents do not work exclusively with specific insurance companies. They are able to sell insurance policies with multiple companies and can shop around to find their customer’s the best rates for the coverage they’re looking for.
The main advantage of being an independent agent is the ability to sell products from multiple insurers. This allows agents to access any product a client might need or want, including niche policies that captive insurers don’t offer. Similarly, independent agents can match clients with unique risk profiles with insurers that have the underwriting appetite to serve them. In fact, producers can shop clients with special needs to multiple carriers to see which can provide the best solution at the lowest cost.
Independent agents typically receive higher commission rates than captive agents. This is because insurers don’t have to house them, provide income support or provide employee benefits. And since independent producers are autonomous business owners, they can seek out the highest-paying insurers, further expanding their overall compensation.
Since independent agents can work with any insurer, they can partner with those that serve the same markets they’re targeting. This allows them to penetrate underserved markets, which will improve their ability to acquire clients that other agents and carriers are ill-equipped to serve.
The ability to access a wide range of products lets independent agents position themselves as objective insurance providers. Since a captive insurer can’t handcuff them to a single product portfolio, they can highlight their freedom from ethical conflicts when speaking with prospects. This becomes a competitive advantage for them over their captive competitors.
Most importantly, independent agents are in business for themselves. They have the ability to create their firms from the ground up, conforming to their vision of how an insurance agent should operate to benefit their clients. For people who like to call their own shots, being an independent agent is the best of all possible worlds.
Of course, no insurance-agent model is perfect. Independent agents have disadvantages, just as captive agents do. Here are some of the major ones:
Independent agents have to provide their own start-up capital. They must create their own brand as opposed to benefiting from a captive insurer’s pre-existing brand. This can be expensive and take a long time to realize. They must generate their own leads rather than have their captive insurer provide leads for them. This can be costly, as well.
It can be challenging for independent agents to master the underwriting and new business procedures for many different carriers. Each insurer will have its preferred way of doing business, which independent agents must adhere to. If they don’t, their insurance applications might get “lost” in the process.
Because independent agents represent so many different insurers, it can be difficult to master every company’s product portfolio. Even though independent agents theoretically aren’t subject to sales quotas, they usually have to produce a minimum amount of sales in order to maintain their insurer appointments. Affiliating with insurance marketing organizations (IMOs) can remove this restriction since multiple agents can team up to fulfill their IMOs overall sales target.
If independent agents select an insurer that ends up leaving the market or going insolvent, it can harm their customer relationships.
PROS OF AN INDEPENDENT INSURANCE AGENT
Most independent agents are independent contractors that run their own business or work with a group of agents in a unified agency (to share expenses). Independent agents work to cover their own office expenses, marketing, and lead generation. They’ll have to cover the salary of administrative staff. This can mean they are stretched thin and don’t have extensive time to dedicate to customer research and relationship-building.
CONS OF AN INDEPENDENT INSURANCE AGENT
An independent agent is not a full-time employee nor do they have full-time benefits. Independent agents rely solely on commissions from whatever carriers they write a policy with. However, they may receive higher commissions than a captive agent, depending on the insurance company(s) that they work with. Likewise, they aren’t usually required to force a sale to clients to meet sales quotas. Because they’re operating their own business, any ongoing training they receive is their responsibility.
CHOOSING A CAPTIVE AGENT VS. INDEPENDENT AGENT
Ultimately, whether you choose to work with captive agents or independent agents depends on what your goals are for your small business.
- If you’re trying to get the best prices possible, it may be better to work with independent agents. They have a wide variety of access to multiple company’s insurance products.
- If you’re looking to build a long-term relationship, an independent agent can help you find different insurance options with different companies that fit your business year after year. When your needs change, so can your insurance policies.
- If you’re unfamiliar with the different insurance companies and just getting started, working with a captive agent who can walk you through every step of the process with their insurer may be helpful. It can be an easier user experience that is less overwhelming.
- Captive agents may be able to devote more time and research to help you craft the best policy for your small business.
- A captive agent can help you find a great policy that will fit your specific needs and budget
