More Captives Making the Leap to Independence
Many insurance agents start in the captive insurance model, learning the ins and outs of the industry, and building their knowledge of selling. The hard market, exacerbated by the pandemic and record inflation, has made providing client coverage difficult, and in some cases nearly impossible without having access to a broader range of products – making many captive agents ponder making the leap to independence.
The State of the Insurance Industry
IBISWorld1 says there are 420,056 insurance agencies and brokers in the U.S., as of 2023. The U.S. Bureau of Labor Statistics (BLS)2 says there were 523,000 insurance sales agents in 2021 and the number of agents is expected to increase by 6% between 2021 and 2031.
Insurance is a thriving industry because people and businesses need coverage – it isn’t optional. However, with the industry’s many different competing models of delivery - the captive and independent agency models, direct models that cut out agents entirely, delivering service via consumers’ banks, online, and through other services - agents looking to survive need to choose their allegiances carefully.
Although the captive agent traditionally has more security and the comforts of a stable paycheck, benefits, etc., the definition of “captive agent” is in flux and many carriers have altered the agreements with their agents, affecting profitability and viability.
On the other hand, if you’re entrepreneurial, comfortable with taking some risk, and want to expand into multiple lines, build your income, and grow a business you can someday sell or pass down to the next generation, going independent may be an appealing path.
The Appeal of the Independent Agency Model
1. The captive model may be losing its luster.
Some captive agents switch to the independent model because they’re unhappy with changes at their captive carrier.
Changes at the carrier level may not always be in you or your clients’ best interests. For example, you might pay for leads only to have your company pass them to another agent. Alternatively, the company may raise premiums so high that policyholders flee. Worse, companies may do these things while enforcing ever-rising quotas you can’t possibly meet under such conditions.
Ted Paris, Executive Director at National Association of Professional Allstate Agents (NAPAA) agrees. He estimates that 75% of captive agents leave for other opportunities within five years and roughly half don’t even make it five years. “It changed for the worse. Companies are increasing demands and lessening rewards,” he explains.
Jeff Felger, Director of Legal Activities for United Farmers Agents Association (UFAA) notes that continual production tiering changes are perceived to decrease agent commissions. In addition, captive agents can feel pressured to hit carriers’ new business quotas. In some cases, captive agents prefer to focus on existing relationships and their referrals rather than pursuing new business, and this choice is not always respected.
Declining consumer loyalty is also making it more difficult to succeed in the captive model according to Felger.
2. The independent agency channel is strong.
Despite growing competition from online and direct channels, the independent agency model is strong. The Big “I” 2022 Market Share Report3 shows that independent agencies captured 62% of all property-casualty insurance written in the U.S. and 88% of all commercial lines premiums. If you want to be part of an evolving industry, it makes sense to embrace the independent agency model.
3. Independent agents can serve their clients well.
Independent agents are doing well because they can serve their clients better. Period. Insurance is confusing to the average person, and the stakes are high when buying coverage. Instead of trying to buy coverage directly online, many people want the expertise and guidance of an insurance professional. With rising premiums, many consumers want someone who can obtain quotes from multiple carriers, find the best deal, and provide more customized solutions, which helps independent agents close more sales and retain more clients.
“As I really started trying to take on that trusted advisor role, I often found that we were trying to put circles in square holes. Unfortunately, you can only go so long with believing that your one product is the best fit for every customer. It quickly became clear that I needed to go independent."
-- Jeremy Powers, Powers Insurance Experts
4. The sky’s the limit.
The BLS says insurance sales agents earned an average of $49,840 in 2021. This is only slightly better than the national average of $45,760 for all industries.
Independent agents have the potential to earn much more, as they’re not restricted to one carrier, and can seek out the best commission structures. They can also sell more diverse lines of to further increase their revenues. If they’re partnered with a network or agency alliance, they may also have access to exclusive incentives and higher commissions.
5. You’re in control.
If you’ve ever wished your captive agency did things differently, you know how frustrating it is to have good ideas you can’t implement. As an independent agent, you have the freedom to do things your way. Whether you want to change the way you approach marketing or alter the hours that you work, you’re in control.
“Every single member who has gone independent seems to love it. The toughest part is getting past the original shock that perhaps there are some insurance companies who actually appreciate an ethical and hard-working agent.”
-- Harriet Stahl, National Association of Americas Finest Agents (NAAFA) Business Manager
The Dark Side of the Independent Agency Model
Let’s be realistic, the independent agency model holds a lot of appeal, but it’s not all sunshine and roses. The challenges can feel intimidating to even a seasoned agency owner.
1. Carrier access can be a barrier.
Carriers can be highly selective about the agents they work with, and often want to see a certain level of experience as well as a commitment to a quota. For agents who are trying to build their book from scratch, this can seem daunting or even impossible. Many agents find they need network support to overcome this hurdle.
“No one wants to give a startup agency the opportunity to get direct access. They want to see a minimum premium amount and a number of other things before they’ll give you a chance. It can be really difficult to get those appointments.”
-- Chris Walters, Integrity Insurance Group
2. There’s no guarantee of success.
You’ve heard the expression, “With risk comes reward.” The independent agency model has a higher potential for reward than the captive model, but it also has a higher level of risk. Starting over can feel daunting, especially without a guaranteed salary to fall back on. Agents must be willing to evolve and change constantly to succeed.
3. The learning curve can give you whiplash.
Mastering the procedures, systems, and products of dozens of carriers can be an extraordinary challenge. You also need to manage every aspect of running the business on your own – from marketing and operations to following up on claims and underwriting issues.
Journey to Independence: How Three Agents Made the Switch
Allan Miles founded the R. Allan Miles Insurance Agency after 12 years as a captive. He says although carrier access was a major barrier at first, the ability to find alternative solutions each year as companies change and go through cycles, makes it easier to keep his customers. “Because the business is very cyclical, companies may be competitive one year and not as competitive at the next renewal. As an independent agent, it’s easier to find alternative solutions.” Miles credits client referrals, a lot of hard work, and a great network partner for helping him grow his book to over $7 Million in premium.
Martha Hernandez had a $6M book with State Farm, before she left and opened her own agency in 2019 and admits the hardest part of going independent was leaving her existing customers behind. When she moved to the independent side, she didn’t want to fall into the same traps that had limited her before. “I actually wanted to be as independent as possible,” she says, explaining she didn’t want to get stuck in a contract that drained her commissions for carrier access. Fortunately, she found a network relationship that gave her full independence and says her close ratio is so much higher than before. “The fact that customers can access every option with us is just a lot easier for everybody. “If I knew then what I know now, I would've gone independent a long, long time ago.”
Jeremy Powers left behind a $4-5M book as a captive with Allstate and shocked everyone when he left to open Powers Insurance Experts in 2019. In just 18 months, even in the midst of a pandemic, he grew his book to almost $2M. The biggest challenges he faced were working with very limited funds and having trouble accessing the markets he wanted. Powers was able to fast-track the process of securing carrier appointments by joining a network. “I started this business with $3,000 and a dream,” he says. “Having access to a network’s advisors was an amazing resource, helping me put a strong foundation in place so my agency could succeed immediately. The independent space not only gives us the products and the ability to make sure we’re offering the best solution, but we also have more technology to leverage and make sure our customers get the best experience.”
Essential Building Blocks
Success isn’t a guarantee, but it is within reach. With the right strategies, you can rise to the top. Here are four essential building blocks for starting your agency.
- Gain carrier access. Getting access to carriers needs to be your top priority, but going directly to them might not work. You need to find another way to get appointments in the beginning – for example, by joining a network or agency alliance.
- Choose your partners carefully. If you decided you need support from an aggregator or network, consider your choices carefully. Some organizations require fees that might be prohibitively expensive for a new agency, and/or lock you into a multi-year contract. Look for a partner that offers the support, carrier access, and commission structures you need without fees.
- Prepare Your Exit Strategy. Once you’ve decided to go independent, make sure you do your due diligence and understand what it will take to exit your current situation. Create a strategy for securing your first new clients, and getting set up with new carriers, and begin to take the steps necessary for a smooth transition.
Are You Ready to Make the Leap?
You should make any major career change with your eyes wide open. Before you decide to transition to independence, read more about the resources you need to be successful.
Sources: