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How to go from captive agent to independent insurance agency owner


6 minute read

Captive or independent? Maybe you've decided that the grass is really greener on the independent agency side of the business: commissions are higher, bonuses are bigger, freedom is greater, and the ability to serve your clients is far superior to that of captive insurance agents.

Congratulations on your decision, and best wishes to you as you begin thinking through the exciting journey of becoming an independent insurance agent or agency owner! As you do that, I'd like to give you some thoughts on the transition, what to expect, what to be prepared for, and how long you should expect it to take you to go from successful captive to even more successful independent agency owner.

Here are some things to think about as you begin to dream about your future agency.

The changes

First, recognize that life will be better for you, but it will also be different. You'll have many opportunities to build income rapidly and become an even larger independent agent than when you were a captive agent.

Navigating more choices

The first opportunity is a greater choice of insurance companies to write business for. Most new agents transitioning from the captive ranks find that working with multiple insurance carriers allows them to successfully quote 60 to 80% of the prospects they have access to, compared to 15 to 20% as a captive agent.

Doing research on the most competitive carriers in your marketplace, along with their insurance product lines, will be important to you as you build your business plan. 

Closing more sales

Another opportunity is that you should experience higher close rates, because you simply have more choices, and therefore more chances to be successful with any given prospect. Of course, how well this actually works for you will depend on how good a job you do in interviewing and selecting insurance companies based on their market competitiveness, their breadth of product offering, and their ease of doing business.

A client who works with a captive agent will only be offered the trusted choice from their parent company, while an independent agent works with several companies, and can choose for example from various life/health insurance products, including cheaper or more comprehensive options according to the client’s needs.

Generating more income

Of course, you should expect to make more money. Independent agency commission rates are typically 33 to 50% higher than the captive agency carriers pay. You will undoubtedly achieve more bonus income when you buy insurance for a client, since you get to choose which company to work with depending on their commission and advantages, unlike a captive agent who is bound to whatever terms their single insurance company offers them. 

Making your own decisions

Finally, you should look forward to having more freedom to make your own decisions going forward. There'll be no regional or district manager to report to, and no life insurance sales to make in order to maximize property and casualty commissions. You will make all of your own decisions. Sometimes, even when you don't want to. Along with better, though, come challenges that you should be thinking about and be prepared to meet. 

OAA Highlight - How to Transition from Captive to Independent

Marketing your agency

The first challenge will be that you must develop your own system for making the telephone ring. Captive carriers spend hundreds of millions or billions of dollars on marketing to make it easy for their employed agents to sell insurance. All of that will go away for you, and you will have to find a way to market your agency, your services, and your value to the marketplace. 

Developing organization and systems

As you transition, you need to begin to think about the systems and processes you will use in your agency, because they will be different in many aspects to those you're used to, and you may have to develop some. 

  • You'll need an Operations and Procedures Manual.

  • You'll need an agency management system.

  • You'll need a comparative rating system.

  • You'll need a website.

  • You'll need bank accounts and all kinds of other things that you must prepare for. 

Dealing with multiple carriers

A significant challenge for any new insurance agency is seeking and securing insurance company appointments with high-quality insurance companies. You can expect this to be very time consuming: not only will you need to call or write local representatives of carriers, but you'll need to have interviews with them, where you both seek to determine whether you might be a good fit for that carrier.

Assuming those interviews go well, you'll need to complete a comprehensive and detailed application process with the carrier, and then wait for them to decide.

As a new agent, regardless of how successful you've been in the past, you should expect to have some degree of refusals or turn downs from carriers. This means that you'll have to apply with more companies than you expect to write business for. This will take time and you need to allow for it in your planning. 

Managing carrier relationships

Finally, once you're open and writing business, you'll need to master the skills of insurance company management. Yes, that's right, you'll need to manage the insurance companies you write for!

This is important for two reasons:

  • To make certain that you have an acceptable loss ratio and that you're maximizing revenue with those carriers.

  • To meet the production goals that you've mutually agreed upon.

This is a skill that you will need to develop, but you should begin thinking about it even as you're planning for your transition. 

So, as you think about your transition planning, just bear in mind that you're going to need to find ways to leverage all those good things that I mentioned earlier, and to mitigate the challenges that I've just been describing.

Finding a support network

One of the ways that you can maximize your opportunity and mitigate your risk is by joining an organization that specializes in helping captive and exclusive agents, make the transition to independent agencies. These kinds of organizations are typically called market access providers because, among other things, they provide access to insurance companies and allow you to skip much of the work that I described earlier.

The very best of these organizations have solved many of the challenges for you that I mentioned earlier, and specialize in creating opportunities. One excellent example of this is the Strategic Insurance Agents Alliance, which my own company, One Agents Alliance, is a part of. Joining an organization like that will speed up your transition and make many of the decisions and much of the work you must do faster, simpler, easier, cheaper, and better. 

One of the things that frequently frustrate captive agents is that they have a manager. This manager may be called many different things: district manager, regional manager, sales manager, or some other title, but the truth is that the insurance carrier is attempting in many ways to manage you.

While this feels like a lack of freedom and accountability that you would love to get rid of, the very best managers also provide coaching, mentoring, and help.

So, as you think about starting on your own journey to becoming an independent agent, you may want to think about finding a coach or a coaching organization to help you be your very best, both as an insurance agent and as an insurance agency owner. Again, coaching new agency owners is a specialty of my company, One Agents Alliance. 

Next steps

Let’s say you have either turned in your notice or listed your current captive agency for sale. Now is the time to put all of your research and ambition into a solid business plan. 

Writing a business plan

The business plan should address how you will seek business, how you will market your agency, the kinds of business that you will go after, the types and number of employees you plan to hire, and when you plan to hire them. Also when and where you plan to open an office, and the kinds of systems and processes that you will use.

All of that culminates in a three-year financial projection, called a proforma, where you develop financial numbers to show yourself how you're going to be financially successful. With a solid business plan and captive agency for sale, and lots of research and interviewing of carriers and others completed, it's time to start down the path for actually getting your agency open.

I suggest that you find yourself well down that pathway before you leave your current agency, so that you minimize the income disruption that you will experience. 

Timeline

Here are some general guidelines from a time standpoint. 

Research and planning

Allow 30 days to do your basic research, allow an additional 30 days to develop your business and marketing plans.

Getting insurance products

Allow 60 to 90 days for carrier interviewing, applications, and appointments, so that you will have something to sell when you open your doors.

Hiring and training

Then allow yourself at least an additional 30 to 60 days for carrier training, staff development and hiring, and other human resources issues.

Starting to sell

Finally, once your doors open, the lights go on and it's showtime as a new independent insurance agency owner - allow yourself 90 days for the first policies to be sold and the first income to be received.

Some carriers pay all of the annual commission upfront, but others pay it only as it's earned. So, in the appointment process, you should be careful to make sure you understand how each carrier that you contract with will pay you for each kind of policy you plan to sell for them. That said, 90 days is a reasonable time to plan before you receive any income.

Becoming profitable

Remember, it takes a while to get anything worthwhile to move and for the flywheel to begin to turn. In my experience, most successful insurance agencies really begin to generate success in about three years.

That may seem like a long time, but in my experience, most captive agencies who have the tenacity and the talent to make that three-year commitment find that they make significantly more income with much greater freedom than they did as a captive agent. 

Useful Resources to become uncaptive

If you'd like more detailed information on how to start an insurance agency, the questions you should ask yourself, and checklists and many other tools for helping you get started, please read my book, The UnCaptive Agent, where you will find all of that and more.

Also, our website at www.oneagentsalliance.net has hundreds of blog posts, designed to help you think through and plan for your future success. And on my personal website, www.TonyCaldwell.net, you'll find a number of mini-books, designed to help you get off to a successful start.

The transition from exclusive agent to independent agency owner is an exciting adventure, and it's a profitable one. It's eminently achievable for a committed, entrepreneurially-minded insurance agent. If I can be of help to you at any point in your journey, please feel free to reach out to me. 

Good luck.

Download the free "How to Start an Independent Insurance Agency" guide from OAA.