An independent agent is well… independent. We do what we want, we’re our own boss. We don’t need no man! Just kidding. It pretty much means we represent multiple insurance companies. We aren’t tied to one company, like the State Farm or All States of the world. If you buy insurance from a State Farm agent, they can only put your coverage with State Farm. Agents with only one insurance company are called captive agents. If you buy insurance from an independent agent, they can shop multiple, sometimes dozens of carriers, compare, contrast, negotiate, and recommend the best option(s).
Captive agents are kind of silly, imagine if your realtor was a captive agent for XYZ realty and can only sell you houses that XYZ realty are selling. You’d be pretty bummed when that cute little bungalow you saw down the street isn’t available because the selling agent is with ABC company. On the other hand, captive agents are likely to really know their products, since their product offering is limited. XYZ realty is likely to know every detail of their properties while ABC company may just know the basics. Independent agents must be up to date on the new forms, coverages, and differences between multiple carriers. Often the lingo is a hurdle of those outside the industry, so just understanding what policies actually say can be an important service an agent can provide when comparing quotes across different insurance companies.
Agents in general are often compensated via commission from the insurance company. Rates vary from 3.5% - 20% depending on the premium amount and type of insurance. An industry standard is 15%. The agents make a small percent of that percent, and the rest goes to the agency the agent works for. In property & casualty insurance (home owner’s personal auto, business insurance, etc.) This small percent re-occurs every year when the policy renews. With life & health Insurance it’s reversed. In Life & health, often, an agent receive compensation once and only once in a lump sum when the policy is put in place.
Some agencies are 100% salary based, so there really is zero incentive for the agent to steer your coverages to one company over the other. The commissions from the insurance company just goes to the agency, not the agent specifically. This turns the agent more into a consultant that works for the insured, not the insurer. Regardless, agents really do work for the insured and the insurer, they are the middleman in between to make sure both sides know what their getting into and facilitate a happy agreement. Some agencies have a mix of salary and commission. Some go beyond just insurance. Agents who offer risk management services or specialize in hard to place risks may ask for a broker fee direct from the buyer. This can bring insurance premiums down from the insurance company by asking for net terms, or quotes not including commission. Broker fees can also increase the overall cost to the buyer if taken in addition to commission, in some areas double dipping like this can be illegal.
At the end of the day, you get for what you pay for. More coverage = more premium dollars (usually). Many insurance company advertisements focus on saving you money, but really, they’re (usually) just carving back coverage, which any agent, independent or not can do. Personal lines (like Homeowner’s and Auto insurance) is becoming a bit commoditized, while commercial insurances is more specific to one’s business and creates more of a need for a knowledgeable agent. Insurance is a relationship business. If an agency has good relations with their insurance company providers, it can create a better result for insureds. Willingness to lower premium, manuscript custom endorsements, and provide feedback on if a coverage is even needed between underwriting and the agent can be crucial.
Thinking of becoming an independent agent? Feel free to reach out with any questions.