Captive Vs Independent Agents — Which is Better? — Agency Height
Independent agents or captive agents? Maybe this will help decide the kind of insurance agency right for you!
The insurance industry has a unique landscape here in the USA. If you’re familiar with the industry, then you know that there are three key players in insurance:
- The Carriers: who provide policies and settle claims,
- The Insureds: who hold the policies and pay premiums, and
- The Agents: who act as risk consultants and guide the insureds on their insurance options.
Out of these, the agents are the ones who are most uniquely placed in the entire industry. They act as mediators between insureds and the carriers. They are the ones who advise people on the kind of insurance they need, taking care of all carrier-related paperwork, binding policies, and servicing the insureds in case of claims or renewals.
Traditionally, insurance agency is done through two distinct channels.
You have your captive agents, (the State Farms and Allstates), who can sell policies from a single carrier only. Then come the independent agents who deal with multiple carriers and have more freedom when it comes to offering choice to customers.
A third avenue slowly gaining popularity is the direct lines, where carriers sell directly to the insureds.
This is an age-old question, so we decided to settle it by having a short conversation with an insurance agent who has experienced both sides of the aisle, Beth Kellerman.
Beth has been involved in insurance since 1988. She started as an underwriter for CNA, then progressed to risk management and insurance sales as a captive agent for Nationwide in 1993. After that, she purchased her own independent agency in 2001. She is also a mother of two teenagers and is actively involved in her community. When asked if she would prefer independent insurance agency or working as a captive agent, she had this to say: “It all depends on how many choices and opportunities you have. Ultimately, it comes down to where you can get better support. It is difficult to start and capitalize an insurance agency, and the learning curve is steep.” “However, the captive agency environment isn’t very encouraging of growth. Agencies representing the same carriers are constantly competing with each other, so the opportunities are limited. The systems are still traditional, and there isn’t much in the way of choices to offer your prospects.” “It all ultimately depends on whether you can get enough support and capital to run an independent agency. If you can make a good system for yourself, I will always recommend becoming an independent agent.”
The distinctions between independent agents, captive agents, and direct lines are blurring
Carriers are seeing the value of providing choice to the insureds. A recent article in Insurance Journal notes that carriers are experimenting with multiple forms of insurance distribution to address the customer’s demands of choice.
“This phenomenon is very visible in the industry today”, says Beth. “Carriers are being forced to adapt to newer technology and the demands of tech-savvy customers. They’re spinning their marketing to portray it as their idea, but those that weren’t nimble and able could not survive or thrive.”
We asked her if she could point out to any specific observation that could clarify this shifting trend. She pointed to the fact that carriers are working hard to transition their legacy systems to more of a web-based cloud environment. Isolated systems that wouldn’t talk to each other are being restructured to be more modular and communicable with a centralized system.
However, this is also causing them to shut down a lot of their traditional field offices, and push more servicing work onto the agents. In fact, some carriers have even started charging agents for servicing work.
So was there ever a good time to be a captive agent?
“Through to the end of the 20th century, right before Hurricane Andrew and 9/11, which were major catastrophes, captive agencies were able to grow to tremendous sizes, with support from the carriers.”
“I don’t really know,” admits Beth. “One thing I did notice on the captive side was that the carrier custom of replacing a retiring agent on a one-to-one basis changed. Instead, carriers began to break up a retired agent’s books of business into smaller pieces using them as leverage or seed books for starter agents.”
“So maybe that is the reason captive agents were so big, prior to the aforementioned catastrophes. The agency model for captive agents has never been able to recover and replicate in the same manner.” “I can’t really put a finger on the why, though. It could be a number of factors, like greed, lack of understanding, or lack of a proper model. It could be something missing in the 21st century. Not adapting to technology might seem like the obvious answer, but there are independent agents that have failed to adapt, yet they’re still very large.” “What agents have to understand is that your insurance agency has to have a certain amount of cash flow to be profitable in the industry. There are certain levels you have to get past, and the first level, which is $2 million in written premiums, is hard to reach.” “Carriers do not make it easy for captive agents to reach that level. They want all their insurance agencies to be $5 million+ agencies. They want the agencies to grow, but they do not help them grow. Maybe they facilitated this growth before and during the 1990s?”
Independent Insurance Agents and Family
“I built my insurance agency while spending time with my family,” beams Beth. “My children are a part of my old agency staff photos. My community-based insurance agency was able to grow due to my involvement in the community.”
Beth was able to build her agency while being president of the PTA and a sponsor for local football games. She based her networking, advertising, and community around her children’s school.
“My children don’t like going grocery shopping with me. I stop and talk to all my insureds along the way, and it always takes too long.” she laughs.
New, young agents are also going independent
According to Insurance Journal’s 2018 Young Agents Survey, 89.2% of young agents are independent agents. They are hungry for opportunities and naturally adept at technology. They want to see more young professionals going into independent insurance agency as well.
“It ultimately comes down, again, to choice,” says Beth. “You sell insurance to the person you look at in the mirror. If I’m a millennial, my target market is millennials, and millennials love choices”.
Captive agents are simply unable to provide choice and flexibility to meet the need of millennials.
Ultimately, independent insurance agency is better
“Transitioning to an independent agent from a captive agent and the choices it gave me increased my profitability and retention dramatically.” admits Beth. “It allowed me to remain in the industry a lot longer than I would have been able to do if I was a captive agent. In this current market, I would not recommend the captive agency route to anyone.”
While there are still a substantial number of captive agents, it is clear that independent insurance agency is becoming the clear choice for up-and-coming agents, as well as captive agents looking to become more relevant in the industry.
Think we’ve missed anything out? Leave us a comment with your thoughts!
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Originally published at https://agencyheight.com on December 6, 2019.