What You Need to Know About Meaning of Captive in the Insurance Industry

TLTR: Starting work as a new insurance agent? You may want to know about the different paths you can take. This article discusses the meaning of captive insurance agents, the pros and cons, and whether you should become one.

According to the Insurance Information Institute, in 2020, there were 3,102 captive agents in the U.S. Are you planning to add to that number? Captive agents usually have a more exclusive feel to their product display and carrier partners. If you’re one to sell niche products, you could be cut out for the job.  

Once you’ve passed your insurance agent license exam, you’re free to choose your path in the insurance industry as an agent. Most pick the captive route because of the cozy franchise support with a salary that independent agents never get.   

But what is the meaning of captive in the insurance agency? What do captive insurance agents do daily, and why do people choose to only work with select partners instead of multiple carriers? Let’s find out.  

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Meaning of Captive Insurance Agent  

What does captive mean? To put it simply, a captive agent only works for one company and, in some cases, the company’s partners. In return, the company provides the agent with a salary, office, and the support of a known franchise. Top insurance companies such as GeicoState Farm, and Farmers provide their franchising to captive agents.  

Since the agents only sell their parent company’s policies, they’re probably more knowledgeable about the available policies, discounts, and endorsements than anyone else. If shoppers are looking to find in-depth information on their coverage, captive agents are probably the right choice.   

All insurance agents gain a certain commission split for every new business and renewal. However, captive agents will earn lower commission rates than independent agents. That’s because they’re already getting paid a salary. Their parent company also finances their marketing and office setup.  

To reiterate, the meaning of captive is an agent who is…   

  • Working only for one insurance company  
  • An expert on specific policies and products of their parent company  
  • Earning a salary on top of commissions and benefits  

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Captive Insurance Agent Vs. Independent Insurance Agent  

The biggest difference between captive and independent agents is probably what either might describe as comfort. Captive agents earn a monthly salary regardless of whether they have closed a lead. But these agents don’t get to own their book of business. Similarly, an independent insurance agent can sell virtually any insurance product they wish to sell. However, it could get hard for the agents to build trust with clients without a big name supporting them.  

Working independently means that you’re in control of what happens with your independent insurance brokerage. It’s both a good and a bad thing. You’re responsible for generating leads, chasing them, and converting them into clients. Most agents aren’t too happy about this because they’re usually good at one thing: selling insurance 

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Pros of Becoming a Captive Insurance Agent  

Like a coin, there are two sides to working as a captive insurance agent. Here are some advantages of becoming captive:  

Support from a Franchise 

With decades of industry knowledge, insurance companies are the right entities to help you in your career. They’ve developed successful strategies and winning marketing plans that have helped numerous agencies. If you’re a novice who’s testing the water, working as a captive agent can help you in many ways. The company will provide you with best-in-class training and professional coaching.   

Most franchises will help you out with marketing and generating leads. They understand that advertising may not be your best skill. Geico, for example, chooses local markets that work with their strategies and sets up locations for captive agencies. Geico claims that these locations are in excellent drive-by visibility.   

Cozy Salary and Benefits 

If you’re working in the insurance industry, then you know how important a financial safety net is. Working for a parent company means that you will enjoy a monthly salary on top of benefits and commission splits. Glass Door reports that the national annual average salary for captive agents is $46,190.   

You also stand to earn annual rewards, bonuses, and travel incentives if you’re great at selling insurance.   

In-Depth Knowledge of Your Products 

You will only be selling a limited number of products from one insurance company. It would be very hard to get overwhelmed by what you’ll need to sell. Independent insurance agents have virtually unlimited insurance policies to pedal, which means there are more products to learn about than they can sell.   

Captive agents can develop an in-depth understanding of the products they’re selling. You’ll be able to educate your customers better and thereby sell more effectively.   

Insurance isn’t a very interesting topic, but learning risk management and which policies protect what perils will enhance your career. You can counsel your clients better and master your niche. Smart shoppers will pick an experienced seller with few policies over a seller with more products than they can handle.   

Marketing and Advertising Help 

If you’re not good at marketing yourself, the parent company will do it for you. Digital marketing can be a bit of a pain, but it will be much easier when you’re presented with tools and training. Most times, the franchise will also provide you with leads. You can just get to work rather than warm up and chase cold leads.   

New agents who haven’t yet learned how to brand their agency or how marketing works will benefit from working with a franchise.  

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Cons of Becoming a Captive Insurance Agent

It isn’t all sunshine and rainbows working as a captive insurance agent. Let’s look at some of the disadvantages 

Tied to a Single Company 

Perhaps the biggest con of them all, captive agents cannot sell products other than those of their parent company. If a company sells auto insurance, then the agent cannot work with any other company that also sells auto insurance.   

For example, State Farm sells auto, homeowners, and life insurance. If you’re working as State Farm’s captive agent, you’re not allowed to work with Nationwide since they also sell auto, homeowners, and life insurance. That’s because captive agents aren’t allowed to represent other companies that compete with their parent company’s products.  

No Ownership of the Book of Business 

Becoming a captive agent means one thing—your clients are not your clients. They’re your company’s clients. When a big name insurance company supports your agency, it means that you’re closing more leads. It also means that customers are attracted to you because of the big name.   

The true cost of becoming a captive agent is in losing out on ownership of the book of business. A book of business comprises all the insurance products you’ve sold. The worst part is that the companies won’t even give you the option of buying your book when you exit. However, Renegade does give you the option of buying your book of business when you leave them.  

Stunted Career Growth 

As mentioned above, your clients are your company’s clients. You’ll be growing sales and the book, but not for yourself. If you’re operating an agency, exiting from the parent company will kill it.  

Of course, you will learn plenty from your coaches and training sessions. But at the end of the day, you won’t have much to show for it. You’re essentially trading your book of business and career growth for cushy salaries and bonuses. If you want to stop working with the franchise to open up your agency, career-wise, you will be starting from scratch.   

Without a franchise or a book of business to back up your knowledge and skill, it could be very hard to operate an independent insurance agency 

Contracts and Obligations 

They’re called captive for a reason! You’re going to be signing contracts and following a very strict set of rules as a captive agent.   

Parent companies are notorious for imposing sales quotas on their agents. You won’t be able to sell what’s best for your clients either. You will only sell what the company allows you to sell. You essentially sell what benefits your company and not necessarily what benefits your clients.   

Is It Worth It Becoming a Captive Insurance Agent?  

At Agency Height, we believe that careers are quite personal and that there’s no one better to decide what to do with it besides yourself. One agent can describe success to be a monthly salary and franchise support. Another agent may choose freedom to represent multiple policies and owning their book of business.   

Realistically, it makes sense to work as a captive agent when you’re just starting out. You’ll get to train with seasoned agents and understand insurance policies better without overwhelming yourself.   

However, after a year or two, working as a captive may start to lose its meaning. Why would you work yourself to the bone, meeting sales quotas every month, only to lose your leads when you quit? Independent insurance agents own their book of business and earn a better commission split for new business as well as renewals.   

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In Conclusion  

The decision to shape your career is in your hands. We’ve provided you with the information, now it’s up to you to choose. Do you value a financial safety net or the freedom to choose your work hours?  

As an independent insurance agent, you’re saving up any money that would go into opening a physical office. Geico agents must cough up anywhere from $100,000 to $250,000 for opening and operating an office. Independent agents also choose who to work with, how many clients to serve, and what products to sell.   

A cursory review shows that working independently has more pros than cons. If you’re looking to transform from a captive agent to an independent, then you’ve come to the right place. Add your listing to our insurance directory and gain visibility among thousands of leads.  

Did this article help you understand the meaning of captive insurance agents? Leave a comment below to let us know!   

Frequently Asked Questions (FAQs)

Do captive insurance agents earn more than independent insurance agents?

Independent insurance agents do not enjoy the base monthly salary on top of their commission splits as captive agents do. Moreover, parent companies award bonuses and incentives to their captive agents. However, independent agents are likely to sell more policies due to the availability of multiple carriers.   

The national average salary of captive agents is $46,190. According to GlassDoor, independent insurance agents make $72,813 per year on average. If Glass Door is to be believed, captive agents make quite a bit less compared to independent agents.   

Making the jump from captive to independent actually may have more benefits than you think! 

Is it difficult transitioning from a captive insurance agent to an independent agent?

Absolutely not! Transitioning from a captive insurance agent to an independent agent does mean giving up your biggest support system. However, you’re learning to stand on your own, and what could be better than that?   

As an independent insurance agent, you’re running your own business. You’re deciding your work hours, line of authority, which clients to entertain, and which companies to represent. You’re deciding whether to set up a physical office or to work from home completely.   

Captive insurance agents don’t own their book of business, but independent agents do. If that doesn’t entice you, you should know that the commission splits are higher for independent agents!   

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