Business Overview

As the owner of an insurance agency, your job is to guide customers through the buying process and assist them in determining what policy most closely fits their needs. In addition to the initial sale of an insurance policy, brokers regularly meet with clients to ensure the policy is still the best fit. Many agents also act as the first point of contact should a claim arise. Due to the nature of the business, many insurance agents are their clients’ most trusted advisors.

Captive Agency vs Independent Agency

When considering opening an insurance brokerage, you’ll have two options: independent or captive. Both options can be very profitable and each comes with their own set of pros and cons.

As an independent agent, you can freely sell insurance products offered by many different carriers. You are, in essence, the pre-underwriter. It’s your job to analyze the information you’ve collected to determine which companies will write the policy. You then figure quotes based on this information and offer the cheapest quotes to the customer. Policies vary from company to company, so it’s your job to explain any differences their new policy might have over their current one. Many agents prefer writing and servicing one line of business over another. As an independent, you have the advantage of focusing on the lines of business that fulfill you the most.

Captive agencies sign a contract to represent and write insurance for one company (e.g. State Farm Agent or Farm Bureau). You are still the pre-underwriter, but you only have one set of underwriting guidelines to memorize and adhere to. Most captive insurance carriers offer multiple lines of business (e.g. business, personal, life, health, and annuities), making it easier to write a household’s entire book of business. This offers a wonderful opportunity to build lasting connections with your clients. They often become like family, as you’re there to help them through some of their most difficult times. If you decide to be a captive agent, be sure you fully understand the terms of the contract, that you’re familiar with the carrier’s mission, and that you stand by their line of products.

Who is this business right for?

While it’s often a profitable career choice, most insurance agency owners don’t enter it solely for the money. They do it because they love to help people. Insurance is frustrating and confusing to most consumers, yet it’s a “necessary evil.”

A captive agency is wonderful for someone who is genuinely in it to help their clients long-term. While price is important to the client, the level of service they receive from their agent is what keeps them there, even when premiums rise. If a customer forgets to pay their premium and the policy is about to cancel, your staff will pick up the phone and remind them. If there’s a death in the family, you’ll be one of the first to know. And it’s not just about filling out the paperwork for the life insurance policy; it’s about being there for the client and taking a weight off their shoulders during a dark time. Running a captive agency is often more about service writing policies. The financial and marketing support you receive from your carrier allows you to focus on what matters most - the client.

The independent agency path is perfect for the individual who loves helping people, but who also has strong marketing instincts. Without the support of one company, the burden rests on your shoulders to show people why your agency is a step above the rest. It is a more fast-paced environment and no two days are alike.

Regardless of which path you decide to take, you should have several years of insurance experience under your belt. You must possess a firm understanding of the intricacies of this ever-changing profession and enjoy passing your knowledge on to your customers. Your days will often be long, but meaningful.

What happens during a typical day at an insurance agency?

Whether it’s assisting clients in making insurance decisions, filling out the paperwork to write a policy, or working to gain appointments with new insurance companies, agents spend much of their day in sales-mode.

Insurance is a very volatile business, so caring for your current book of business is just as important as gaining new clients. Insurance illustrations for prospective clients must be prepared and customer questions and concerns should be addressed, in order to keep both new and existing customers satisfied.

When policies come up for renewal, premiums generally change. If you’re an independent agent, you’ll want to review their policy and determine if a policy with a new company is a viable option. Each independent carrier has their own claims department and way of processing a claim. As their agent, you’re there to take down the initial loss information and provide them the details of what will happen next. At that point, most adjusters ask that you exit the process and allow them to handle any questions or concerns.

If you’re a captive agent, you’ll want to review their policy so you can explain any rate changes, should the customer inquire. As a captive agent, you’ll also often be the first person a client sees or talks to after a loss. You’re there to take the claim and will often be the middle man between the client and the claims department. Your day is, simply put, about building and maintaining relationships with both customers and insurance companies.

Without a marketing plan in place, however, you won’t have a customer base to care for. Therefore, a good portion of your day should be spent working to reach your target audience. This is particularly true of an independent agent, who doesn’t have the support of one particular carrier’s name and resources.

What is the target market?

Many independent agents build a successful agency by focusing on one target niche. Some are more knowledgeable in commercial lines and enjoy the high commissions that come with higher premiums. Others focus their attention more on personal line products such as teen drivers, art collectors, or RV’s. If you do decide to focus on writing one type of business, be sure you know your product well, as your marketing efforts will need to align with those goals.

While their knowledge might be stronger in one, most captive agents write all lines of business. Thus, their ideal customer is someone looking to keep as many lines of business in one agency as possible. This is beneficial to you, as you’re able to get to know the client and their insurance needs on a deeper level.

Loyalty and trust is built, which helps ensure a long-standing relationship. This can still be done successfully in an independent agency, but it requires a great deal more work and partnering with the best companies in the industry.

How does an insurance agency make money?

Your agency brings in money for each policy that is written. Upon policy issuance and renewal, commission is paid to the agency. Commission is paid at a higher percentage upon policy inception, with a lower percentage for renewals, which occur semi-annually or annually, depending upon the policy.

What is the growth potential for an insurance agency?

Your agency’s growth potential is directly tied to the lines of business you choose to write. Many captive and independent agencies sell personal and business insurance, as well as life, health, and annuities. This ensures you’re able to care for all of your customer’s needs, further strengthening that relationship. As a captive agent, you will have guidelines regarding what you can write and when. Independent agencies are allowed a little more flexibility and franchising is a viable option once you’ve made a name for yourself in the insurance community.