Differences Between Captive vs. Independent Agents?

As a current (or future) insurance agent, you want to set yourself up to do your very best work. And as you figure out how you can reach your potential, one question you might be tossing around? ‍

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Should I be a captive agent or an independent agent?

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Both come with significant benefits—and pitfalls—depending on how you prefer to work, the types of insurance products you can sell, and how you earn your income.

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Let's dive into the differences between the two so you can make the best decision for you, and your career.

Captive vs. Independent Agents 101

Captive insurance agents work for a single insurance company, while independent agents sell policies from multiple carriers. 

They both sell policies to small business owners to help protect them against specific risks (like fire, theft, or data breaches). 

While they do many of the same tasks, the main difference between the two is the type of commercial policies available to them and the service they will ultimately be able to provide their clients.

Considering being one or the other? Let's dig into both so you can make the best decision for your career.

Captive Agents

Captive insurance agents, or exclusive insurance agents, work for one company in the insurance space. As such, they sell that carrier's policies exclusively. This can make it simpler and easier to sell all the insurance coverage a client needs by bundling policies together and securing multi-policy discounts and other benefits.

While captive agents generally only sell their own carrier's policies (like only selling policies from All State or State Farm), there are some exceptions. As a captive agent, you might sometimes sell a competitor's policies if your parent company doesn't offer that kind of insurance coverage. For example, a captive agent representing ABC Insurance might sell a cyber liability policy from XYZ Insurance if ABC doesn't provide cyber insurance.

Some captive agents are paid a salary. Others are independent contractors who rely entirely on commissions earned for each sale. In some cases, captive agents earn both a salary and commission. However, if you earn commissions, your commission rates are typically less than those earned by independent agents because the insurance company pays for overhead costs, such as office space, staff salary, and leads.

How Much Do Captive Agents Earn?

As with any career, the compensation you'll earn as a captive agent will depend on a variety of factors—including your employer, location, the types of insurance you sell, and other specifics. 

But the average captive agent salary in January 2023 was $93,821, which includes a base salary of $66,247 and additional pay (bonuses and commissions) of $27,574.

Independent Agents

Independent insurance agents don't work for a single company in the insurance space. Instead, you operate your own business or work as part of an agency in which you represent different insurance companies. This allows you to offer a variety of business insurance policies from different carriers.

Many insurance agents opt for the independent model. In fact, independent agents were responsible for nearly 88% of all business insurance policies written in 2021.

One of the benefits of being an independent agent? Because you're not obligated to sell any one company's insurance products, you can operate as an advocate on your client's behalf by shopping around and identifying the best policy available from the different carriers you represent.

Independent agents aren't paid a salary by the companies they represent. Instead, insurance carriers pay a commission for each policy an independent agent sells. Because independent agents are responsible for their own overhead, insurance carriers will typically pay you a higher commission rate than they do captive agents.

How Much Do Independent Agents Earn?

Independent agents often earn higher salaries than their captive counterparts, but there's a catch: an independent agent is typically responsible for covering their own business expenses—like rent or office space, office supplies, advertising and marketing, and employee salaries.

On average, an independent agent's salary is $117,895, split between a base pay of $80,715 and bonuses and commissions of $37,181.

What Are Insurance Brokers?

When it comes to buying an insurance policy, customers have an additional option—and that's working with an insurance broker.

In contrast to insurance agents, insurance brokers represent customers—not the insurance provider. Their primary responsibility is to navigate the insurance industry and shop around for a policy that suits their client's needs, both in terms of coverage and budget.

Though brokers and independent agents seem similar, brokers can't execute or bind a policy—only agents can put a policy into force on behalf of the company they represent. But because brokers aren't contracted to any specific insurers, they can often compare and recommend a wider variety of insurance products than independent agents.

Companies in the insurance space pay brokers a commission when a customer buys a policy a broker recommends. However, brokers can't suggest policies to customers based on the commission they'll earn as they have a fiduciary duty to their clients, though they can charge a broker fee for their services—which can include ongoing advice about a customer's insurance situation.

Working with an insurance broker is especially beneficial if a customer has complex insurance needs or their business is growing and needs additional protection.

Pros and Cons of Being a Captive Insurance Agent

There are some significant benefits to becoming a captive insurance agent. In exchange for representing a single company, you're not responsible for dealing with the intricacies of running your own business. On the flip side, agreeing to sell a single insurer's products can limit your potential clientele and earnings.

Let's look at the advantages and disadvantages of working as a captive insurance agent.

Pros

• Build reputation and name recognition: Captive agents typically work for large and/or well-known insurance companies. This can make you seem more trustworthy or reputable to clients, especially if that reputation is backed up by reviews and positive word of mouth. This can be great if you're just starting out in the industry and need to build your credibility.
• Access to customer service and support: Captive agents are supported by their insurance carriers, which means you have a customer support team dedicated to assisting and servicing your clients. Prioritizing customer satisfaction can help you retain your clients.
• Develop in-depth knowledge and expertise: Captive agents are intimately familiar with their parent company's products and policies. This helps you identify the correct policy and coverage for your clients. You'll also have a detailed understanding of how your parent company's processes (such as claims) function.

Cons

• Can't shop for rates from competitors: Captive agents can't rate shop from competitors to find insurance products with the lowest possible premiums. Instead, premiums are dictated by your parent company. Clients could look elsewhere for agents that can find them more affordable policies.
• Limited policy availability: Captive agents generally only sell products offered by a single insurance company (the company they work for). This can make it difficult to secure the exact coverage your clients need, especially if and when they have unique risk profiles.
• Pressure to sell: Captive agents must often meet sales quotas. Not only can this pressure cause stress (particularly if you fall short of your expected goals), but it can also put pressure on your interactions with clients—making you seem pushy, demanding, or "salesy."

Pros and Cons of Being an Independent Insurance Agent

Becoming an independent insurance agent can give you more freedom to recommend and sell a broader range of insurance products. This can help you appeal to a wider target market, but there are still some considerations to keep in mind before you go independent.

Let's look at the benefits and downsides of working as an independent agent.

Independent Agent Pros

• Can seek the best rates: Since you work for a variety of carriers, you have more options when finding the right policy for your clients. That means you can offer them the best rates and most affordable insurance quotes without compromising the quality of coverage.
• Offer a range of coverage options: Independent agents can find policies for clients with unique or complex risk profiles by leveraging the variety of carriers they work with. That can boost the number of clients you can get–and ultimately revenue you bring in.
• Build a large network: You'll need to make connections in order to get appointments, which means you'll know a lot of different players in the field. You can draw on those relationships for referrals, guidance, leadership positions in the industry and even friendships.

Independent Agent Cons

• Lack of in-depth knowledge: Because independent agents sell products from multiple carriers, you might not have in-depth knowledge of any of those insurance carriers' products. Though you'll be broadly familiar with their policies, you might lack some information that captive agents learn through ongoing training. You could be missing out on tips that could help your clients save money or get better coverage–both of which can keep your clients happy.
• Lack of access to captive insurance companies: Independent agents aren't always able to represent carriers that rely on captive agents. While you'll have access to other carriers to offset that, if there's one particular carrier you really want to work with–you may want to consider being a captive agent instead.
• Limited name recognition: Independent agents and agencies might not be immediately recognizable, especially compared to national carriers. It can be difficult for leads to determine the quality and level of service you provide—which can sometimes make it difficult to land clients.

Which Career Path Is Right for You?

There's no right or wrong choice when it comes to deciding between a captive agent vs. independent agent. What matters most is becoming the type of insurance agent that appeals to you, your preferences, your goals, and your expectations.

Fortunately, as a licensed insurance agent, it's not too difficult to switch from being a captive agent to an independent agent—or vice versa. In fact, sometimes new agents start their careers as captive agents to learn the ropes and establish themselves in their market before transitioning to an independent agency—or going out on their own.

Some considerations you'll want to think about when deciding between becoming a captive agent vs. independent agent include:

• Competition: Many captive insurance businesses operate on a national level, with significant name recognition, marketing budgets, and support. This can make it simpler for captive agents to focus on winning and converting leads. In contrast, independent agents are more flexible and are better positioned to respond better to local market needs.
• Expenses: Captive insurance companies handle overhead, so captive agents can focus almost entirely on sales. In contrast, independent agents are responsible for all (when they work on their own) or some (when they work for an agency) of their overhead expenses. But because independent agents typically earn more than captive agents, that extra income can help offset the additional costs.
• Available insurance products: Captive agents are limited to selling their parent company's products. However, captive insurance businesses provide ongoing training and continuing education to help you become an expert on the products you sell. Independent agents can sell a wider variety of products from multiple insurance carriers but are entirely responsible for familiarizing themselves with each different product, including each insurer's specific terminology and processes. Additionally, independent agents are responsible for their own training and continuing education.
• Support: Captive agents can lean on their parent companies for back-office support. This includes customer service, marketing and lead generation, legal representation, education, and career guidance. Independent agents need to be more entrepreneurial and are responsible for building or connecting with their own support networks.
• Book of business ownership: As a captive agent, your book of business—or, in other words, your clientele—belongs to the company you work for. You can't take your clients with you if you move on to another company or go independent. Though you need to build your own book of business as an independent agent, once you build it, you own it—and you can do what you want with it. This includes selling it to another agent, agency, or insurance company if and when you move on or retire.
  

Use These Tips to Help You Decide What Type of Insurance Agent to Become

Many small businesses struggle to understand the complexities of business insurance. As an insurance agent, it's your responsibility to demystify insurance to help business owners protect their companies and employees.

Ultimately, choosing between becoming a captive agent vs. independent agent has less to do with the job responsibilities and more to do with the work environment you prefer. If you like having a lot of different options and responsibilities–an independent path might be for you. If you enjoy structure and security, then becoming a captive agent may be the right choice.

Either way, you're in for a fulfilling career!