What Is a Captive Insurance Agent?

Katie Wilmoth | November 4, 2021

There are two different types of insurance agents — captive and independent. Captive (sometimes referred to as “dedicated”) agents are insurance producers who work for one company and sell one company’s products. Conversely, independent agents work for multiple companies and can sell multiple different types of products to their customers.

Advantages to Being a Captive Agent

Overall, captive agents receive a great deal of support from the company they represent and assistance with many of the challenging aspects of operating a business. 

Financial Benefits

Many agents choose to go the captive route because of the stability it provides when opening their own agency. Dedicated agents work for a company rather than for themselves, so they are provided with a salary, commission, and often — benefits. Independent agents must fund the opening of their agency and rely solely on their own revenue from customer sales to receive an income. Captives also benefit from their parent company’s national marketing budget (and name recognition), whereas independents must fund their marketing efforts on their own.

Marketing and Sales

Dedicated agents often receive assistance in the form of numerous marketing referrals, assistance with administrative duties, a nationally recognized brand that recruits prospective clients, and ongoing training and support.

Product Knowledge

A major benefit to being a captive agent is that you’re only required to learn one company’s product, rather than a multitude of products from numerous carriers. This makes the agent highly knowledgeable and specialized in one particular product.

Disadvantages to Being Captive

Being a dedicated agent can also be challenging for many reasons due to limited product options, cumbersome contract requirements, and the inability to satisfy every customer’s insurance needs.

Satisfying Customer Needs

The biggest differentiator between captives and independents is their ability to satisfy the requirements of their customers. Some customers may not qualify for coverage under their parent company’s guidelines. Some may have insurance needs that can’t be satisfied by the captive company because they don’t offer that type of coverage. Or maybe the company can give the client the coverage, but not at a competitive price. This creates a dilemma for the agent because they may not be able to do the right thing for their client since they ultimately are beholden to the insurance company they work for.

Contract Requirements

Captive insurance agents often have to sign contracts that require them to meet certain volume levels or production requirements.Often companies may require their agents to meet certain volume levels or production requirements which can affect their income or bonus potential. They also may push certain product lines and sales quotas on the agents that may not be in the best interest of your customer. This can be stressful for an agent trying to build their business. Independent agents are free to shop coverage with multiple different companies and product lines which enables them to really customize insurance plans for their clients. 

Customer Retention and Close Ratios

Insurance companies often change their product lineups, pricing guidelines, and rating requirements, which can affect whether a consumer is able to obtain coverage with that company. Dedicated agents may find an existing customer non-renewed for some reason, or not be able to obtain coverage for a potential new client, which can affect their ability to close sales, and build their book of business. Independent agents can simply shop for coverage with other companies that may be more suitable for their clients’ needs.

Owning Your Business

Unfortunately, in some cases, a captive agent could spend their entire career building their agency, but still not own their book of business. When they decide to retire, their agency and customers may be absorbed by another agent or the company itself as many companies trend toward direct sales. As an independent agent, you are free to perpetuate your agency and pass on your book of business to a person of your choosing. 

Should You Become a Captive Agent?

If you’re thinking about becoming an insurance agent and opening your own business, it’s important to evaluate your personal strengths and weaknesses and establish your career goals before making a decision. Smart Choice® is an insurance agency network dedicated to supporting independent insurance agents through appointment access, marketing support, and competitive commission splits. Reach out to discuss your options and potential for growth as an independent agent.

Katie Wilmoth