Captive Agents Vs. Independent Agents

September 12, 2019

Many people divide insurance agencies into categories based on the kind of insurance they sell. However, there is a second important way the insurance industry categorizes agents: captive agents vs. independent agents. The differences between captive agents and independent agents can impact the agents’ daily routine and what type of insurance they specialize in. It can also determine what income can be reasonably expected while working within that sector of the insurance industry.

Understanding the differences between captive agents and independent agents is vital for those deciding how they want to work in insurance. If you are getting ready to enter the insurance industry, these basic distinctions will help you decide on being a captive agent or an independent agent. 

Captive Insurance Agents

Captive agents are also called exclusive insurance agents. Captive agents work under contract for one insurance company. This means that they only sell that insurance company’s products and policies. Insurance companies generally provide their captive agents with a lot of support in return for their loyalty. This can include access to administrative staff and resources, an office or cubicle, and additional support resources. Whenever customers contact insurance companies about their policies, they will inevitably be referred to captive agents in their same locale. 

Independent Insurance Agents

On the other hand, independent agents have no work contracts with any one insurance company. Instead, independent agents sell products and policies from several insurance companies. Independent agents work under a different style of contract with multiple companies to offer their products and coverage. Since independent agents work on such nonexclusive terms, insurance companies generally do not provide them with as much or any administrative and workspace support. 

Despite having no access to the same support resources that captive agents receive, independent agents gain the flexibility of being able to sell to their clients products from multiple insurance companies. This gives them a far wider selection than captive agents and more flexibility in tailoring policies to customers. However, independent agents cannot usually sell for companies that use captive agents. These companies almost always rely solely on their captive agents to sell their policies. This prevents their captive agents from being placed into competition with independent agents in their area.

Captive Agents Vs. Independent Agents

While these differences are significant, perhaps the most important difference is in what each type of agent can expect to make. Independent agents tend to make more on each sale they make. In some cases, independent agents can even make 50 percent more than captive agents on each sale. However, independent agents also have to pay for their own overhead costs. That means that a big chunk of their profits is spent on their own business upkeep.

Captive agents receive lower commission rates on every sale, but they also receive partial or total compensation for their overhead from the company they are contracted with. Additionally, they often receive a salary on top of their commissions. Independent agents may have higher earnings potential, but the stability and support offered to a captive agent generally mean their income is more stable and consistent over time. Higher overhead often leads independent agents to form partnerships with other independent agents to form their own company. This lets independent agents share the financial burden of operating their businesses.

Making the Decision

Whether being a captive agent or an independent agent is truly the best choice varies for each individual. Some people value the support and resources offered by a single company. Others prefer to strike out on their own and forge their own path. Each type of agent has unique advantages and drawbacks, but each person has to decide for themselves which is the right fit for them.