The Difference between a Captive and Independent Agent

When you walk into the office of your local insurance agent, chances are he is either an independent or captive insurance agent. The terms independent and captive are used to describe the type of contract the agent works under, with the company or companies for which the agent writes insurance.

A captive agent works under an agreement that they can only represent one insurance company. Normally these are very large companies that offer a wide variety of insurance products and services. The policies written are the property of the insurance company with the agent providing service, by keeping them up-to-date and submitting any claims that are reported. Under this arrangement, the agent is usually better compensated since they do not own the policies, known as a book of business.

An independent agent has agreements with their insurance carriers that allow the agent to represent more than one company at a time. These companies can range from the large insurance carriers that offer a wide range of policies to the specialty insurance carrier that offers a narrow range of policies. The policies written belong to the agent, and they are responsible for keeping them up-to-date and submitting any claims to the company. Under this arrangement, compensation is usually lower than that of the captive agent, but the independent agent has control and owns his book of business. When the agent retires or closes his business, it allows the agent to sell the book to another agent that is also licensed by the same insurance carrier.

The captive agent does benefit from their insurance company’s name brand. The companies which use captive agents work hard to have a name that is nationally recognized. If you see a company that advertises frequently on TV, chances are, they are a company that uses a captive agent.

The independent agent can suffer from the lack of name brand recognition. If the nameplate on the door is not recognized, a prospective client might pass them up for a familiar insurance company.

An advantage the independent insurance agent has over the captive agent is flexibility. They can usually choose a policy from one of several companies. This allows them to find the policy that best fits the person seeking insurance. They are also more likely to be able to find insurance for a hard to place insurance risk.

A drawback for the captive agent is that the insurance carrier they work for can more easily dictate to them. The company can require that a certain policy type be pushed (i.e. sell more life insurance). They can also be more limited in the types of quotes that can be provided.

Regardless of the contract the agent has with the company, both types of agent have the same responsibilities to the companies they represent and to the insureds with whom they do business.