The Captive to Independent Agent Journey

By Ted Baran

Have you paid your dues as a captive insurance agent? Then you may be ready to go independent to better serve clients.

Insurance sales professionals face two choices about how to do business: operate as a captive agent or become an independent agent. Both business models have distinct pluses and minuses. Captive agents usually migrate toward independence as they gain more experience.

The Appeal of Independence

Captive insurance agents, also known as career or exclusive agents, only sell for a single insurer. That company pays them a combination of base salary or other support payments, commissions and benefits. Agents can either be an employee or an independent contractor for a single insurance company.

Captive agents are normally required to focus on selling their company’s products. If their firm has brokerage capability, they may be allowed to access other companies’ offerings when no internal solution meets a client’s needs. In most cases, though, captive agents are highly “encouraged” to keep their business within the fold.

In contrast, independent agents are not tied to one single insurer. They can access products from multiple companies. This flexibility lets them select the most appropriate solutions for their clients. Independent agents can also manage their businesses as they see fit. They can define their own procedures, hire the people they want to work with, take as much time off as their cash flow allows and, ultimately, as an exit strategy there is the possibility of selling their book of business to anyone who accepts their terms.

If you’re a captive producer with significant experience, you may be well positioned to consider going independent. Having the freedom to offer your customers products from more than one insurer is a big advantage when trying to address less common risk exposures that mainstream companies don’t insure. Another reason is to free yourself from captive-agent sales quotas.

Transitioning to Independent-Agent Status

Moving from captive to independent status is not a trivial matter. You’ll need to address four big issues right out of the box:

• Legal constraints: Is there anything in your captive-agent contract that prohibits you from competing with your former employer? Known as a non-compete agreement, you may have agreed to limits on your ability to migrate existing clients into your own business. You also may have constraints on your ability to compete with your former company’s agents in a certain location over a given period of time. Although the power of non-compete agreements has declined in recent years, they can still be a powerful hindrance to achieving independence. If you’re not sure about the significance of having signed a non-compete agreement, consult an attorney.
  
  In addition to non-compete agreements, agents are now solely responsible for proper licensing, carrier appointments, compliance concerns, and more. While this is all manageable, there is no longer a corporate structure to support agents.
• Financial support: Being a captive agent comes with privileges. For example, you may have benefited from clerical and marketing support, especially the ability to receive qualified leads. Another plus is receiving commission advances. This means your earnings are calculated on the basis of the scheduled annual premium, not just a client’s initial premium payment. Receiving your full annual commission as soon as the business goes on the books is a huge cash-flow advantage. Once you become an independent agent, you will likely lose this benefit.
• Technical support: As a captive agent working out of a company-owned agency, you probably received a computer, access to printers, the ability to send out direct mails and emails, technical support when something went wrong, and other office resources. Once you leave the agency, you will need to replicate the hardware and software you took for granted, as well as all marketing and tech support. If you’re handy with computer gear and applications, you might be able to serve as your own computer help desk. If not, you’ll need to hire a local firm or freelancer to do it for you.
• Sales support: In your prior job, you may have received access to illustration and case support, which helped you design appropriate insurance solutions for clients. Again, once you leave the captive ranks, you’ll need to handle this yourself. If you can’t provide this service, you’ll need to find someone who can, and those services may be expensive.

The Strategy Question

Equally as demanding as clearing the first four hurdles, is coming up with a strategy for your new business. In other words, what kind of company do you want to build as an independent agent? This will require answering questions such as:

• What will your value proposition be?
• What will be your key target market or markets?
• What products will you offer your customers?
• Which insurers do you plan to represent?
• How big of a business do you want to build (solo practice vs. full agency)?
• What selling system or systems will you use?
• Will you be a traditional bricks-and-mortar agency or an online insurance business (or a traditional/digital hybrid)?

Although you’ll be tempted to shortcut the planning process, don’t. You’ll need a robust and fully rationalized business strategy to succeed as an independent agent. The more work you do at this stage, the fewer problems you’ll encounter post-launch.

Tactical Questions

Once you resolve the four issues and decide on a strategy, you’ll need to address a host of tactical concerns. These decisions will help your independent-agent business operate smoothly. They include:

• Deciding on a phone system.
• Creating a marketing identity (business name, logo and corporate identity).
• Selecting and purchasing an agency management system.
• Determining who will handle your bookkeeping and what software you’d like that person to use.
• Building a robust content-driven website, with full inbound-marketing capabilities.
• Developing a marketing plan and migrating as much of it online as possible.
• Determining how to migrate your captive-agent clients to your new business, without running afoul of your non-compete agreement (if any).
• Affiliating with an insurance marketing organization (IMO) for sales and marketing support. As mentioned earlier, this will make it easier for you to meet carrier minimum-production requirements.
• Joining an association of professional insurance agents for networking and access to affinity benefits and purchase discounts.
• Updating your state insurance license and developing a plan to fulfill your required continuing education credits.

Answering these questions to the best of your ability will advance you quickly down the road to independence. But don’t be surprised if questions surface that aren’t on this list. Dealing with unexpected problems is the essence of business ownership. Training yourself to go with the flow rather than getting angry or impatient will increase your odds of reaching your final destination.

Protect Your Investment with E&O Insurance

As an independent agent, you may end up making more money and being happier than you were as a captive. But one thing won’t change: your risk of getting sued. Clients may file complaints and lawsuits against you in connection with alleged errors and omissions. To protect your assets against litigious clients, it’s important to buy errors and omissions (E&O) insurance.

In short, if you want to build a successful long-term career in insurance sales, think hard about which agent business model plays to your strengths and minimizes your weaknesses. If you decide to pursue independence, use the questions in this article as a planning guide. Then mitigate your liability risks by purchasing an affordable and comprehensive E&O policy from an insurance provider you trust.

Having E&O insurance is an essential element of an insurance agent’s or broker’s long-term success. Learn more about the AIP Errors and Omissions (E&O) insurance program exclusively for agents and brokers of Colonial Life.