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Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Updated July 22, 2023
A captive agent is an insurance agent who only works for one insurance company. A captive agent is paid by that one company, usually with a combination of salary and commission, plus benefits. They may be a full-time employee or an independent contractor.
Insurance agents can choose to be either captive agents or independent agents. Captive agents work for only one insurance company whereas an independent agent does not work for any particular insurance company but rather can sell policies from an array of companies.
As captive agents work for only one company, they have an in-depth knowledge of their particular company's insurance products, but cannot help a client who does not need or does not qualify for that company's products.
In many instances, the parent company may push its captive agents to sell certain policies or meet certain sales quotas, oftentimes not being the best product for the customer. Independent agents are usually better for clients because the agent can seek out the best policy for that client's needs. The only drawback is that an independent agent may not have specialized knowledge about a particular company's products.
Captive agents often excel at providing an exceptional level of service to their clients. This is so because they have the freedom to spend more time on relationship building, fact-finding, and customer service. In an increasingly digitized insurance marketplace, those are the types of things clients increasingly aren't getting.
An independent agent arrangement can be better for agents because it offers a more diversified source of income, but it can also be riskier because the agent may need to provide their own startup capital, pay for business expenses, and arrange benefits. Being an independent agent requires having to start one's own business, which entails all of the aspects of setting up shop, as well as having to find insurance companies to work with.
A captive agent on the other hand has these aspects taken care of for them and does not have to put up a significant amount of capital to start working. The main reasons an insurance agent would prefer to work as a captive agent is therefore financial and the ease of conducting business. Their company usually provides an office, administrative staff to process paperwork, ongoing training, significant bonuses, and other motivational programs, not to mention a significant national advertising budget.
Captive agents typically receive extensive lists of prospects from their insurance company because when consumers respond to advertising, the company directs them to a captive sales agent in their area.
Captive agents are also usually paid a salary and commission and receive benefits. Independent contractors are usually just paid commission and have to provide benefits for themselves.
Some drawbacks to being a captive agent are that you are tied to cumbersome contracts and have obligations to the insurance company that you work for, often tying your hands in how you can conduct business.
Some insurance carriers still impose quotas for selling products, even if they are subpar when compared to competing products on the market. As a captive agent you won't be able to sell what is best for your client but rather what the insurance company has to offer, and this might also be at a higher price than what the client could receive elsewhere. As a captive agent, your goal is to increase business for your company as opposed to provide what is best for your client.
