Skip to content
June 3, 2020

The Future of Captive Insurance Agents is Bleak Right Now

6 min read

Topic: Blog Growth Agent Insight Video strategy insurance Grow an Agency

n the last few years, captive or exclusive agency channel insurance carriers have been reducing commissions, creating online competition for their agents, and struggling to be competitive in the marketplace with fewer products, narrower competitive windows, and unprecedented cost pressures. This isn't news to you if you currently represent a captive, exclusive agency or direct writing insurance company. In fact, it's become a part of your life. 

As frustrating as this is, you must ask yourself the question, “Is it going to get worse?” 

The entire world has been turned upside down by the coronavirus pandemic. Literally every business and every family in the world has been impacted. In business terms, a friend of mine recently said, “There are two kinds of businesses in America right now. One of them is having their asses kicked and the other is kicking ass.” 



Which kind of business do you have? 

For most captive insurance agencies, it's the former. They are having their asses kicked, for all the reasons I mentioned earlier. The economic disruption of COVID19 is just making it worse - and it may be with us for the long term. While independent agencies have the same issues as exclusive agents with coronavirus, for many of them 2020 and 2021 are going to be a time of kicking ass. 

That’s because, in every crisis, there is an opportunity. While independent insurance agencies will need to play defense, their offensive capability - due to representing a number of insurance companies with broad market appetites - means that they have a unique opportunity to grow their business. 

Karen(2)As you consider the economic impacts of COVID-19, here are some things to bear in mind. The first is every insurance policy in America is going to be on the streets. There isn't a single American family that doesn't have financial stress due to job loss, or a fear of one. Every homeowner and every automobile owner in America is concerned about their own personal financial future. This will force them, in unprecedented numbers, to look at their personal expenses, of which insurance is one of the highest. This means for every agent, retention is the number one thing they must focus on to ensure their own survival. The fact that consumers will be “shopping their insurance” means that the competitive landscape in the insurance industry just got much tougher.

Captive insurance carriers have been losing business to the independent agency channel steadily over the last 15 years. The question to ask yourself is, “Do you still have the most competitive products in the marketplace?” My guess is your answer will be no. 

I was recently speaking to a good agent, who said that of the last 200 home and auto quotes his agency had issued, they've written three. This speaks to a historical lack of competitiveness. While this impacts new business for that agent, it's also going to impact his retention because many of his clients, probably most, will be shopping their insurance this year. How many clients will he lose? And how much sleep?

What will be your situation? Will you be losing business? Your carrier is planning on it as most insurers are. That's what they expect, and when their top-line revenue is reduced, in order to avoid losing money they must cut expenses. Let me ask you: where do insurance companies usually start when cutting expenses?

That's right. Agent’s compensation.

So, what does all of this mean to your immediate future? It means you must play defense and try to hang on to as many of your clients as you can. But you'll be doing it in an increasingly competitive landscape where the independent agent, with broad market appetite due to representing many insurance companies, has an unfair advantage. You'll be doing that in an environment in which auto insurance rates may be going up due to continuing loss pressures as we enter the third and fourth quarters of 2020. 

Now, it’s true that independent agencies have the same retention issues that the exclusive agent or direct writer does. But, to quote The Wizard of Oz, “They have something you haven't got.” They have choices. And they start off with a much higher level of compensation, including higher commissions and profit-sharing than the captive agent. Where the exclusive agent sells personal insurance at an average compensation rate of around 10% or 11%, the successful independent agent, particularly those that belong to One Agents Alliance, sell insurance for around 20 cents on the dollar or more. 

All of this means that this may be the time for you to consider becoming an independent insurance agent

As you think about this, a key question to ask yourself is, who makes your phone ring? Where do your clients come from? Do they come from your insurance company’s advertising and signage? Or do they come from your personal prospecting and sales efforts?

OAA Highlight - COVID-19 and the Captive Agent

If they come from your insurance company's advertising, then you need to realize that advertising costs money, and that's why they pay you less commission. On the other hand, if you are responsible for your own success, you’re a good prospector, and you're the reason that you write new business you have to ask yourself, “of what value is their marketing to me?” Wouldn't you rather have those dollars in your pocket, instead of the insurance carrier’s? 

If your answer is yes, don't you want to have a future for your family and your business where you have many choices for your prospects, which increase your ability to write new business? Do you want to have world-class compensation? Or do you want to settle for the decreasing compensation that you have today?

As you ponder these questions, I'd like you to know that I think this is the best time in the history of the world, to start a new independent insurance agency. Right now, in the middle of tremendous economic disruption and fear, you have a bigger opportunity than you've ever had before. I believe that for aggressive, ambitious entrepreneurs this will be the time when more millionaires are created than at any other time in history. 

I believe this because, in the first place, independent agency carriers have the same problem captive carriers do. They are losing top-line revenue. They must replace it. This means they are going to be willing to make appointments with new agencies and spread their agency distribution even more frequently than they ever have in the past.

The second reason is that existing insurance agencies, whether captive or independent, must spend the next couple of years playing defense. Again, every business and every consumer in America has new and increasing cost pressures and anxiety. They will shop their insurance. This means that if you're already in business you must focus on retention. You must play defense. All the time. In person, on social media, in any way you can.

Copy of DSC07269If you're a new insurance agency, you can take the field on offense and stay there. Think about a football game in which the offense stayed on the field 100% of the time. Who's going to win the game? That's right. The team with 100% offense. That's the position that new insurance agency owners are going to be in for the next couple of years. But, taking advantage of this unique opportunity in history means that you need to move quickly. Nothing, including this unique opportunity, lasts forever. I don't know how long the pandemic will last, or how long the economic consequences of it will linger. Certainly not forever. 

Speed is important, and moving on quickly to the IA channel is a lot easier to do with help than it is on your own. My company, One Agents Alliance, has helped over 250 former exclusive agents create independent agencies. We have developed a unique process for getting a new agency organized and selling insurance fast, and operating smartly thanks to agency management systems and the best practices in the industry. 

I've also written a book, The UnCaptive Agent, to help prospective founders think through how to start an insurance agency. It will not only speed up your process, but it will help you make sure that you do it well and profitably. 

I think the captive, exclusive agent, and direct writing channel is faced with unprecedented challenges. The captive carriers themselves agree with me. That's why they are increasingly cutting your pay and why they are increasingly competing with you.

What do you think? 

If you'd like to explore alternatives, we'd love to talk to you.

Tony Caldwell is a modern “renaissance man,” who is not only immensely successful in the field of insurance, but is also a writer, children’s advocate, mentor and even a licensed pilot.

Always keen on helping others make their dreams come true, Tony and his team have helped independent agents grow into more than 250 independent agencies. This has made OAA the number one ranked Strategic Master Agency of SIAA for the last 5 years, and one of Oklahoma's 25 Best Companies to Work for.

Tony loves to share his knowledge, insight and wisdom through his bestselling books as well as in free mediums including podcasts and blogs.

Tony and his family are members of Crossings Community Church, and he is very active in community initiatives: he’s chairman of It’s My Community Initiative, Inc., a nonprofit working with disadvantaged people in Oklahoma City; and chairman of the Oklahoma Board of Juvenile Affairs., and he has served through many other organizations including the Salvation Army, Last Frontier Council of the Boy Scouts of America, and the Rotary Club.

In his spare time, Tony enjoys time with his family. He’s also an active outdoorsman and instrument-rated commercial pilot.