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The process of selecting an insurance policy can often be an intimidating venture for any consumer and especially for business owners. Purchasing insurance for your business is an important decision that often includes consideration of a wide array of factors. However, many Americans still find insurance terminology and policies overly confusing – and for good reason.
Insurance agents are professionals who can help you navigate the often tricky process of purchasing insurance and assessing the needs of your business. Working with an agent may expedite and clarify the insurance purchasing journey. However, as a business owner, it is important to know the difference between the types of insurance professionals in order to make an informed decision about the insurance agent you choose to work with. At the end of the day, you are the only one tasked with making the right decision for your company.
You may wish to know the difference between captive and independent insurance agents if:
- You are a small business owner looking to purchase a new policy
- You would like to make a more informed decision about an additional policy you wish to add in order to insure your business
- You are a business owner and would like to know how your agent makes money
- You are a businessperson at the beginning of your insurance purchasing journey and would like to compare the services of a captive agent and an independent agent
- You are in the market to find an agent for your business’s needs
- You are looking to become an insurance agent yourself
What is an insurance agent?
When most business owners decide to purchase an insurance policy, they will often work with an insurance agent or broker. The main difference between an insurance agent and an insurance broker is that agents act as representatives of insurance companies, while brokers represent their clients. Both brokers and agents are mandated by state regulations to assist consumers in purchasing insurance policies at a reasonable rate.
What is a captive agent?
A captive agent is an insurance agent who works directly and solely for an insurance carrier. Many of the large national insurance companies employ captive agents who are responsible for becoming experts and selling the company’s exclusive suite of insurance products. Some insurance carriers, such as State Farm, only distribute their insurance products through captive agents. If you want to purchase insurance from these companies, you’ll have to work with a captive agent.
Sam is a captive agent at Nationwide. Sam is only able to sell Nationwide insurance policies. Sam’s employer is Nationwide, to whom Sam is responsible for achieving sales goals. Because Sam is only able to sell Nationwide insurance products, Sam has become an expert on all the company’s policies, thereby making him a trained and experienced consultant for all things Nationwide.
All captive agents are paid exclusively by the insurance company that employs them. Typically, a captive agent’s compensation includes a base salary and a commission on the policies that they sell. Sometimes, a captive agent’s entire compensation will consist solely of commissions.
What are the pros and cons of a captive agent?
The benefit of a captive agent is that he or she is very well versed and experienced in all their company’s offerings. Because they can only sell one company’s products, they will know exactly all the details of a specific policy and can help assist you when you are deciding between several different offerings from one company. A captive agent will also have in-depth knowledge of the qualifications of specific products and therefore will quickly be able to tell you if you qualify for a product or not.
Captive agents will also likely have more knowledge of discounts offered by their carrier, particularly discounts on bundled policies. Additionally, because of their experience and knowledge, captive agents can provide exceptional customer service.
The obvious downside of a captive agent is that he or she can only sell you products from one company. Furthermore, depending on the structure of their compensation package, a captive agent may be incentivized to sell only certain packages to meet their sales quotas.
What is an independent agent?
Contrary to a captive agent, an independent agent is an insurance agent that sells insurance policies from many different insurance companies. Independent agents are not considered employees of a single company.
Maggie is an independent agent that sells policies from multiple different companies. When Maggie sells insurance to a client, she is able to choose from a variety of policies from a number of companies to best suit her client’s needs. She may be able to offer policies from AIG, Nationwide, and Progressive—all to one client. As an independent agent, she is not an official employee of any of these companies, although she may receive a commission for her sales.
What are the pros and cons of an independent agent?
As a result of not being employed by a specific company, independent agents can bring variety into your search for an insurance policy. Independent agents can offer policies from a number of different companies based on your specific needs and preferences. Because they are not employed by one single company, they may be able to give more candid feedback on which policy may be the best for you. Independent agents can be very useful when comparison shopping different policies.
One of the downsides of working with an independent agent is that although independent agents are not employed by a single company, they are compensated largely by commission. Independent contractors may still be motivated to sell policies from companies that award them a higher commission percentage.
Since they are able to offer a diverse array of products, independent agents may not know extensive details about specific products. Additionally, independent agents may not have the most in-depth knowledge of all of the discounts offered by a particular carrier. Lastly, independent agents are personally responsible for their overhead and marketing costs and may not be able to devote as much time to an exceptional customer service experience as a captive agent would.
How do I know which is right for me?
As we mentioned above, there are many upsides and downsides to both captive and independent agents. Both types of insurance agents are bound by regulation to act reasonably to help you obtain insurance for your business. However, the service and products that they offer you can widely vary.
As a business owner, it is up to you to gauge your personal and professional situation to best assess which type of insurance agent suits your needs. Purchasing insurance is a significant decision for any business or organization, and selecting the right type of insurance agent to purchase from must be an informed decision.
You should consider working with a captive agent if:
- You know which insurance company you wish to purchase from and need an experienced and well-versed agent to help assist you in the buying process
- You have a very special and unique need that requires the experience and expertise of an expert in specific insurance policies
- You have time to shop around on your own and compare quotes from different companies
- You want to take advantage of discounts offered by a specific carrier that captive agents are more likely to know about
- You desire an excellent customer service experience
You should consider working with an independent agent if:
- You don’t have time to research and compare multiple insurance companies and policies
- You want to get honest feedback regarding your options across multiple insurers
- You want to take advantage of discounts from comparison shopping
- You have a general need that most agents know and can quickly assist you in
As a business owner, you are tasked with making the best financial choice for your business. Protecting your business against unseen and unplanned situations is a large part of ensuring the success of your business. Any advice and counsel you seek from an insurance agent during this process can greatly impact your business for years to come. In order to make a knowledgeable decision about your insurance, you must gauge the needs of your business and select what type of insurance agent you’d like to work with.