Captive Agent vs Independent Agent: Which Is Right for You?

The main difference between a captive agent vs independent agent is the number of insurance carriers they represent. Captive agents are paid by a single insurance carrier and can only sell its policies, while independent agents work for themselves and represent multiple carriers. Independent agents often charge higher fees but offer broader product selection.

Captive Agent vs Independent Agent Comparison

*Fees, commissions, and compensation disclosure are regulated by individual states and may vary in your location.

When it’s time to buy insurance, most small business owners turn to agents. These agents work with insurance carriers and have been licensed in their state to sell insurance. Depending on the nature of their relationship, carriers compensate the agents either by paying a salary, a commission, or a combination of the two.

However, not all agents have the same relationship with carriers. Sometimes agents are “captive,” meaning they’ve signed on to only sell insurance from one carrier and are typically carrier employees or contractors. Other agents are called independent and can partner with multiple carriers.

These differences can matter a lot for insurance shoppers who want to find affordable insurance coverage that matches their business risks, especially when it comes to comparing offers. Working with an independent agent makes it easy to shop multiple carriers. On the other hand, captive agents may have the right product for your business.

When to Use Captive Insurance Agents

The main reason to buy insurance from a captive agent is their in-depth knowledge of a single carrier’s policies. Captive agents are fully-trained in their insurer’s products and know the particulars of getting business owners appropriate coverage. Plus, captive agents tend to work with brand-name insurers that small business owners trust.

Other situations where captive agents might make sense include:

• Business owners who have time to shop: Captive agents can only offer coverage from a single insurer, so you may want to get quotes from more agents. That requires appointments and applications for each carrier you’re interested in pursuing.
• Business owners who don’t want to pay a brokerage fees: Depending on your state law, independent agents may be allowed to charge a brokerage fee when they first write your policy. Captive agents usually aren’t permitted to.
• Business owners who are interested in a carrier’s specialty policies: Carriers sometimes develop unique products for certain industries, and business owners can only access them through the carrier’s captive agents.
• Business owners who want to take advantage of carrier discounts: Most insurers offer discounts for buying multiple policies, and captive agents are more likely to know about them.

“As an independent agent, I can help clients compare several different insurance policies side by side, but there are some plans that can only be offered by captive agents with their particular insurance company. Most times, consumers are shopping on price, but they might get some discounts or other perks by keeping everything together with their captive agent at Allstate or USAA, for example.” – Adam M. Hyers, Owner, Hyers and Associates, Inc.

When to Use Independent Insurance Agents

Independent agents are best for small business owners who want to review policy offers from multiple carriers. More often than not, an independent agent can point business owners towards the carriers best suited for their risk and then walk the owner through each quote, comparing both price and policy terms.

Other situations where independent agents might be right include:

• Business owners who want to save money: Independent agents can get quotes from more than one carrier, which usually means their clients can find either the lowest price or the best value. This is very helpful when it comes to workers’ compensation.
• Business owners who want to save time: Filling out insurance applications takes time. Once an independent agents has the information, they can often submit it to their carriers so you don’t have to.
• Business owners who don’t want to pay service fees: Most captive agents charge fees every time a policyholder makes a request. Some independents do this too, but many don’t because of the extra paperwork state insurance departments require.
• Business owners who have complicated risks: Independents have more access to a greater variety of policy options than captive insurance agents, so they can often find affordable coverage for unique risks.

“Independent agents are going to have a better understanding of how the coverages are interlaced commercially than most captive agents and more markets to quote your business. Commercial policies are more a la carte than personal lines policies just because every business type is different, so you literally can itemize coverage for a specific business and drop the ones that are irrelevant. For example, tools coverage is important for contractors but not so much for a day care; however, the day care desperately needs errors and omissions coverage in case something happens to a child.” – Jason Thompson, Founder, Carolina Insurance Alliance

When to Buy Insurance Directly From an Insurance Carrier

Insurance shoppers have a third choice for getting coverage, and that’s working directly with a carrier. More carriers offer policies either online or by phone through their own in-house agents and sales representative. This option is more common with personal auto and homeowner’s policies, but some insurers sell business coverage this way, too.

Buying insurance directly from an insurance carrier can be ideal for busy business owners who struggle to find time to meet with agents in-person. The carriers who sell policies directly to consumers typically have online platforms that let business owners apply, bind, and service their policies, so policyholders can work this more easily into their schedules.

If you’re interested in buying insurance directly from a carrier, The Hartford is a good choice. They specialize in small business insurance and have an online application that is easy to complete and returns quotes within minutes.

Visit The Hartford

How Captive Agents Work

Captive agents represent a single carrier, selling only that carrier’s insurance products. The carrier pays the captive agent either a salary or commission while also supplying marketing materials, product training, and other resources to help the agent open an agency. Carriers also set strict product-specific sales quotas for their agents.

The training captive agents receive ensures they are well-versed in their carrier’s products. On the other hand, they are limited to only selling those products and maybe those of one or two approved vendors. That limitation and their sales quotas can sometimes incentivize captive agents to push some policies over others.

“Different companies have different agent agreements, but some captive insurance agents are even contractually obligated to NOT display price quotes from any other company except for the company they represent. That’s certainly not to say captive agents can’t be client-centric or even be outstanding agents who place the needs of the client above their own, but it’s important as an insurance shopper to realize that a captive agent is often only going to recommend that you purchase what they can sell.” – Joel Ohman, CFP, Founder, CarInsuranceComparison.com

How Independent Agents Work

Independent agents are in business for themselves, so they can partner with as many carriers as they wish. They can also choose to sell any insurance product, including property and casualty, life, and health insurance policies. However, to get and maintain these partnerships, independent agents usually have to meet the carriers’ production minimums.

According to Ohman, independent agents are more like a classic broker or client-centered adviser than captive agents, but that doesn’t mean they aren’t sometimes pressured to sell certain policies.

“Independent agents may be compensated differently by different carriers they represent and so there can still be incentives that might cause them to favor one company or product over another, whether it’s in the clients best interest or not,” says Ohman.

Captive Agent vs Independent Agent: Fees

Cost is usually a major concern for small business insurance shoppers, so captive agent versus independent agent fees matter. While neither controls how much a policy costs, they both can charge extra fees for binding and servicing policies, depending on the laws in their states and the agreements they sign with carriers.

Captive Insurance Agents Fees

Captive agents sign a contract with a carrier that includes details on what fees they can charge. Sometimes carriers allow captives to charge business owners a fee when they bind a policy, but it’s more common for captives to charge fees for servicing. These service fees usually run between $10 and $25 for each request.

Some of the services captive agents charge fees for include:

• Adding additional insureds
• Printing additional policy documents
• Issuing certificates of insurance
• Reinstating cancelled policies

Captive agents charge these fees because servicing policies takes time away from their sales efforts. Service fees compensate them for the time they spend on a policy.

Independent Insurance Agents Fees

Like captive agents, independent agents may charge an extra fee every time they touch a policy. Many choose not to because it helps them stand out from the competition. However, independent agents are more likely to charge a policy fee whenever a business owner binds a policy. Policy fees can be anywhere from $15 to $400.

Sometimes independent agents’ policy fees are based on your premium. In general, agents want to earn around 15% of the premium. If the carrier pays them 10% commission on a particular policy, they may add a policy fee when they first sell a policy to make up the rest, and some may also tack on a fee for renewing. Policy fees are non-negotiable because agents have to file them with their state department of insurance.

Captive Agent vs Independent Agent: Carriers & Comparison Shopping

Another important difference between captive agents versus independent agents is the number of carriers each can represent. Captive agents represent a single carrier and only sell policies offered by that carrier. On the other hand, independent agents can partner with multiple carriers, so business owners who work with independents often get to compare quotes.

Captive Insurance Agents: Carriers & Comparison Shopping

Captive agents work with one insurance carrier. As a result, captives are limited to selling only the insurance products developed by that one carrier. If a client needs a policy the carrier doesn’t sell or is in an industry the carrier doesn’t cover, the agent usually can’t help them.

Unfortunately, it also means captive agents usually can’t show clients multiple quotes. This can be a major drawback for business owners who want to compare offers so they can get the best value out of the money they spend on insurance. That’s not to say business owners can’t get quotes from more than one carrier. It just means they’ll need to visit more than one agent to get those quotes.

The flip side to this is that captive agents know a lot about the policies their carrier offers. Captive agents work with these policies every day, so they know the contract language, the claims process, and any common pitfalls. That information can be valuable to business owners who need guidance when it comes to insurance.

Independent Insurance Agents: Carriers & Comparison Shopping

Independent agents can contract with any number of insurance carriers to sell that company’s insurance products. Even if they haven’t contracted with a particular carrier, independent agents can work with outside companies to gain access to that carrier’s products. Consequently, independent agents often have more options for business owners to compare.

Working with an independent insurance agent makes comparison shopping much easier than it is with a captive agent. First, independent agents typically give clients multiple quotes to choose from. Since they aren’t limited to one carrier’s products, they can often tailor a business’ coverage by selecting the best policies from the carriers they work with. Finally, independent agents may sell personal lines, life insurance, and employee benefits, giving small business owners one place to cover all of their insurance needs.

Captive Agent vs Independent Agent: Quotas & Compensation

Independent and captive agents have quotas to fulfill. Independents’ quotas are actually minimum production requirements they must maintain in order to work with carriers, while captive agents have sales quotes that are determined by their insurer. These quotas, plus insurers’ compensation structures, may encourage agents to focus more on sales than on client need.

Captive Insurance Agents: Quotas & Compensation

In addition to selling only one carrier’s products, captive agents are often hamstrung by other contractual obligations. Carriers often require captives to meet strict sales quotas or push certain policies over others, and this may encourage agents to recommend coverage that isn’t right for your business.

While sales quotas may cause bias in captive agents, sometimes their compensation packages may minimize it. Some captives work as employees and may receive salaries sales commissions and benefit packages that relieve some of the pressure to push specific policies.

Independent Insurance Agents: Quotas & Compensation

Independent agents may be in business for themselves, but they still have quotas to meet. Carriers who sell through independent agents usually put production requirements in their contracts. If an agent falls behind in that obligation, the carrier may end the relationship.

Moreover, different carriers have different compensation structures. One carrier might pay more than another carrier or even just pay more for a specific product, and that can play a part in an independent agent’s recommendation. Additionally, agents may be persuaded to push some policies to earn bonuses.

Captive Agent vs Independent Agent: Pros & Cons

While you can buy business insurance from either an independent or captive insurance agent, each type has characteristics that may make them better suited for your situation. For instance, captive agents have access to unique policies that may be appropriate for your business, while independent agents can usually help you comparison shop so you can find affordable coverage.

Pros of Captive Agents

The reasons to work with captive agents include:

• Sell policies from trusted brands: Most captive agents work with well-known insurance carriers that have been in the industry for years, and that can give policyholders a greater sense of security.
• Have deep knowledge of a carrier’s products: Captive agents understand their carriers’ policies inside and out. If the carrier has a product for your risk, the agent knows it and understands how to fit it to your risk.
• Seldom charge a policy fee: Captive agents usually aren’t allowed to charge a fee for binding a policy.
• May have access to unique policy options: Certain insurance plans and programs are only available through the carrier that developed them, which means captive agents are the only ones who can sell them.

Captive agents are sometimes the only way to access a carrier’s insurance products. These products may be exactly what your business needs, so it makes sense to at least meet with captive agents to see what they have to offer.

Cons of Captive Agents

The drawbacks of captive agents include:

• Limited to one carrier: Having access to only one carrier limits the options captive agents can offer you. Some can’t even show you other carrier’s quotes for comparison.
• May push policies based on sales quotas: Carriers often set sales quotas for their captive agents, and that can encourage some to upsell policies you don’t need.
• Can charge for servicing: Captives usually aren’t allowed to tack on a policy fee, but many charge you for requesting extra policy documents, additional insureds, and certificates of insurance.
• May not have alternatives if premiums increase: Because they’re limited to a single carrier, captive agents’ hands are tied if your costs increase. Sometimes their best option is to reduce coverage, and that can leave you underinsured.

Policy limitations and sales quotas might mean you’re not getting the best advice for your business. Even if you get a good quote from a captive agent, you may want to see what else is available from other carriers.

Pros of Independent Insurance Agents

The benefits of working with an independent agent include:

• Work with multiple carriers: Insurance is not a one-size-fits-all purchase, and independent agents’ multiple partnerships give you the chance to tailor your coverage with different policies from different insurers.
• Make comparison shopping easier: The other benefit of multiple partnerships is the agent can usually provide quotes from more than one carrier, so you can easily compare policies and premiums.
• Save time: Independent agents will often shop your risk out to as many carriers as they can, and they do it without having to meet with you each time.

Business owners who want to get the best value out of their coverage need to compare policy offers, and independent agents usually make this easier.

Cons of Independent Insurance Agents

The disadvantages of independent insurance agents include:

• Have limited knowledge of a carrier’s products: Independent agents can partner with any number of insurance carriers, so it’s unlikely they have in-depth knowledge of every insurance product they can sell.
• Can charge extra fees: Depending on state law, independent agents can sometimes charge a fee for binding a policy with their agency. Some also charge for servicing.
• May be incentivized to push one carrier’s policies: Independents typically need to sell a certain amount of premium to keep carrier relationships. That, plus commission schedules and sales bonuses, can encourage some to push one carrier’s policies.

According to Ohman, business owners can protect themselves by asking plenty of questions when they’re working with an agent. He says, “A good agent will not shy away from providing all of the information you need to make an informed decision. Ultimately, your goal is to work with an honest, trusted adviser who can help you to understand your options before making a purchase.”

Captive Agent vs Independent Agent Frequently Asked Questions (FAQs)

Since agents are the most common way business owners buy insurance, choosing between captive agents versus independent agents is of the utmost importance. However, every situation is different, so we took some of the most frequently asked questions and answered them here. If you have additional questions, please post them in the comment section below or in our Fit Small Business Forum.

What’s the difference between an independent agent & a broker?

In many places, agents and brokers are the same. Both work for themselves and sell insurance from more than one carrier. However, some people in the insurance industry only use the term “agent” to describe insurance professionals who sell products from a single carrier and “broker” to describe those who can sell from multiple carriers.

How do insurance agents make money?

Insurance agents make money through a combination of commissions, bonuses, and, in some cases, salaries. Most captive agents live off commissions, while some receive small salaries when they first start out. Independent agents who run their own agencies also survive on commissions, but may pay salaries to the sales agents who work for them.

What is a licensed-only insurance agent?

Licensed-only agents are self-employed insurance sales professionals who work for independent agents and brokers as independent contractors. These agents are usually licensed by the state to sell only certain insurance products, such as life, health, or property and casualty products. Independent agents hire licensed-only agents to employee costs down.

Bottom Line

Nobody should buy insurance without first comparing policies from at least three carriers, but that doesn’t mean business owners should only use independent agents. While independents offer more options, avoiding captives may mean you miss out on a policy that’s best for you. At the end of the day, the key is to do your homework, research your options, and work with an agent you trust to help you make an informed decision.