Most people are familiar with insurance and how to obtain it from insurance carriers, anything from life insurance to car insurance. But did you know there are two different kinds of insurance agents? They typically fall into two categories—captive and independent insurance agents.
A captive agent is simply an insurance agent that works for only one insurance company (such as Geico, Progressive, The Hartford, Farmers, etc.) and sells that company’s products. Captive agents are typically full-time employees compensated with a salary, benefits, and commissions.
A captive insurance agent can be a great choice for your business. But is there a caveat? Here are the pros and cons:
PROS OF WORKING WITH A CAPTIVE AGENT
What are the benefits of working with one company?
Because a captive agent works for one insurance company, this allows them to have an in-depth knowledge of the company’s products, policies, and guidelines. They should be familiar with the different coverage options and claims submission processes. They usually receive ongoing training and are supported by their parent company. Secondly, captive insurance agents often don’t have to handle their own lead generation, advertising, marketing, process paperwork, or cover the overhead cost of the business—the insurance company does that. This frees up the agent to spend more time doing research for clients as well as building relationships.
There are many advantages to being a captive agent. One of the main ones is being able to enter the insurance business without start-up capital. Another is having a limited product portfolio. Although this is usually seen as a disadvantage, for new agents, it can be a big plus. That’s because having fewer products in their portfolio shortens their learning curve. Another advantage is that agents can quickly learn a single company’s underwriting policies and new business procedures. This compares with having to master multiple company procedures as an independent agent.
What’s more, captive agents strongly benefit from their insurer’s brand power. Many large insurers spend millions of dollars annually building national brand awareness. They also spend heavily on lead generation to provide their agents with prospects to approach.
Large captive insurers typically have robust new-agent training. It usually takes place in local offices (agencies) across the country, supervised by sales managers or coaches who are compensated to get new agents productive quickly.
However, not everything is sweetness and light when it comes to captive agents. The biggest disadvantage is that agents working under this model are expected to sell only their employer’s products. If a client has a unique need for which their company lacks a solution, agents may be pressured to sell a company product anyway. For agents who believe in serving their customers’ best interests, the pressure to sell only their company’s offerings regardless of client needs can become demoralizing, leading them to pursue more independence.
Related to product constraints is the inability to secure coverage for clients with unique risk profiles. For example, life insurance career agents might have clients with serious health conditions. However, their companies might underwrite such prospects more stringently than do other insurers. Because of their captive status, agents may not be able to sell life insurance to them even though their need is acute.
Another downside is that captive agents have little or no say about how to operate their business. They must use their employer’s computers and applications no matter how antiquated they are. What’s more, they’re forced to operate in their companies’ target markets despite being uniquely equipped to pursue other markets. And if their sales productivity falls below quota for any reason, captive agents may be out of a job.
But here’s the biggest disadvantage of being a career agent: no ownership of renewal commissions. If agents move to another insurer or leave the industry, they will stop receiving renewal payments. Depending on how long they worked as a captive agent, they will likely forfeit substantial compensation, perhaps enough to retire on. In effect, this gives insurers leverage over captive agents with long tenures. They may crave more independence but can’t afford to pursue it.
CONS OF WORKING WITH A CAPTIVE AGENT
Now that we covered the benefits, what are the cons of being tied to one company?
The downside of working with a captive agent is that they are often being pushed to meet certain sales quotas. They may be pushier with higher-ticket policies and actively work to “close the deal.” The other obvious downside is that they can only sell policies with one insurance company and can’t provide a variety of options for your business.
Lastly, captive agents can only sell you certain policies they have access to. That means there is a limit to how low their prices can go and the options available to their customers. Captive agents work with a predetermined set of policies and are often only allowed to discount a policy a certain amount.
