EF Fall 07.indd - National Association of Professional Allstate ...

featureIs the Grass Really Greeneron the Other Side?Insurance agents are constantly facedwith the dilemma of whether or not it isbetter to become an independent agentor a captive agent. Indeed, there aresome major differences between thesetwo agent types. If all you had to do iscompare Miriam Webster’s definitions ofthe words “captive” and “independent”it would be easy to define yourself andyour business. Webster defines the word“captive” as being “kept within bounds:confined, held under control of anotherbut having the appearance of independence;being taken and held or under thecontrol of others or as a prisoner.” Theword “independent” as defined by Websteris “not subject to control by others:self-governing, not affiliated with a largercontrolling unit.” Now, if it were thatsimple, it would make for an easy choicebetween the two options.Naturally, one of the reasons for becomingan independent agent is to workin an environment free of the control ofothers. Once the decision is made, however,some agents are surprised by howindependent they really are. They soonrealize that, more often than not, theyare truly on their own. While they enjoythe freedom making their own businessdecisions, independent agents do notreceive the support and assistance suchas training, marketing, business support,name recognition, economies of scale,and other amenities that are often providedby some captive carriers. In addition,it is important to note that independentagents are still at the mercy of thecarriers with whom they hold contracts.These contracts can generally be terminatedat any time without cause. A largepercentage of captive agents think that,by going independent, they’ll have accessto dozens of carriers. This is simply notthe case, especially for scratch agencies.This is because the carriers require premiumcommitments.While the grass looks greener forcaptives looking over at the independentside, there are some definite advantagesto the captive side that should not beoverlooked. In most instances, captivesenjoy tremendous brand recognition andnational advertising campaigns. Consumersrecognize brand names such asAllstate and State Farm and when theydo think about shopping for insurance,these are the names that come to mindfirst. Captive agents also have access tofree national marketing and advertisingmaterials. In addition, some companieshave marketing specialists who can assistwith more specific local campaigns.There is also something to be said aboutthe ease of doing business when you’re acaptive agent. Instead of a dozen or moresets of underwriting rules and guidelinesthat independent agents need to be familiarwith, captives operate off a singleset. Captives also usually enjoy the luxuriesof computer support, peer groupsand extensive training for both new andseasoned agents.On the other hand, captives have ahost of special problems that cannot beignored. Agents representing only onecarrier are at the mercy of the companythey represent. As an example, whenAllstate discontinued earthquake coverageand pulled out of property marketsfrom coast to coast, agents were severelyaffected by the loss of new business andrenewal defections. To its credit, thecompany has made efforts to find othercarriers to fill the void, but agent commissionsare significantly lower and thedecision to abandon markets has rankledconsumers and regulators.In the final analysis, agents, regulatorsand consumers will come to realize thatinsurance is a business and businessesmust act in their own best interests tosurvive. The bottom line is that agents,both captive and independent, are simplypawns in the game of insurance. The differenceis that agents on the independentside typically have other carriers to providethe necessary coverage.Other disadvantages of the captivesystem include the fact that agents areonly able to offer one menu of products.If a prospect doesn’t qualify or hasspecial needs, there is usually nothinga captive can do except walk the business,usually to an independent agent.Depending on the company and localmarkets, captive agents can lose up to90% of the prospects who contact themfor insurance. It’s a fact that many captiveagents have developed relationshipswith independent agents who helpplace the business that the captive can’twrite. In spite of their dismal closingratio, many aggressive captive agentsspend thousands of advertising dollarsto generate more quotes, which meanssending a ton more referrals to their independentagent brethren. Sounds likea good advertising plan if you’re an independentagent!16 — Exclusivefocus Fall 2007