Independent Insurance Agent Vs Captive Insurance Agents

Hello fellow agents and prospective Insurance Agents! If you are currently in Insurance Sales or are considering a career in Insurance Sales, the following insights may be helpful in making sure you are on the right path for a long and rewarding insurance Career. It should also help you decide what type of contracts, Independent or Captive, you feel better fit your needs and objectives right now at this point and time in your career.

When I started in Insurance Sales 28 years ago, I was recruited by a Company that only offered Captive Sales Contracts. I did not know that Independent Contracts existed let alone the pros and con’s between them. I spent the first 9 years of my career selling, recruiting and training under a captive contract. I have sold, recruited and trained agents the last 18 years under Independent Sales Contracts.

One of the big concerns I experienced over time working under a captive contract with one company was not having enough product selection. There were several periods of time when certain products we offered were simply not competitive in the marketplace.

This severely limited our ability to provide solutions to many prospective customers. I have found over the years that most captive companies usually only have two or three competitive products at a time. They usually are focused on one or two niche markets. This limits your cross selling opportunities when you’re not allowed to pick up other contracts. As an Independent Agent you are free to contract with many different companies. This can be a problem though because many insurance agents that contract with to many companies at a time begin to lose focus. There will be times, however, when you may want to change markets or add another company that has a very competitive product. You will need to be an Independent Agent to do that.

The other big concern I had working under a Captive Contract was that I did not own my block of business. Another phrase for ownership of your block of business would be “having vesting rights on your block of business.” The company I worked for required you to be their 15 years before you had 100% vesting rights on your block of business!

When I left after 9 years I was only 40% vested. That means I did not receive 60% of my renewals on my in-force policies when I left and became an Independent Agent. Again, I did not know nor was I told that there were other opportunities to sell Insurance and have 100% vesting rights all your sales from day one! I learned the hard way. This is also why it took me a long time to get up the nerve to make the move because I knew I would lose a big chunk of my renewal income. There are a lot of agents that work for Independent Agencies that sell multiple companies that don’t offer vesting rights. So when the agent leaves the Agency still gets all the renewals on the business. This may not be all bad depending on the other support and services that Agency may be offering the Agent.

Generally speaking, another difference you will notice is that Independent Agents commission schedules are usually higher then that of Captive Insurance Agents. For example, when I sold as a Captive Agent I earned 20% commission our Health Insurance products and 55%-65% commission on our Life Insurance products. When I moved over to the Independent Agent Contracts I started earning 25% commission on my Health Insurance Sales and 90%-100% commission on my Life Insurance Sales.

Traditionally one of the advantages with Captive Companies was that they offered more training and support for a new agent entering the business. But nowadays there are many great MGA, NMO, IMO and FMO Agencies that offer all the training and support that traditional Captive Companies offer. Plus you still get top commission contracts, Immediate vesting rights, multiple company portfolios, Lead support systems, etc.

Well, once again we hope that this information has been helpful to you. My you not have to learn certain things the hard way as I had to early on in my Career. By not having first hand knowledge of the pros and cons of Independent vs Captive Contracts it cost me a lot of time and money. An Insurance Sales Career can be very rewarding and your journey to success can be much quicker if you are starting from a point of knowledge!

Get To Know Everything About Captive Insurance

Various small business owners and accountants are not aware about the easy way for reducing their taxes and expenditures. They can reduce their tax by some percentage by sharing or creating a captive insurance company. It has been observed that approximately 80% of Fortune 500 companies are using this method and hence getting some kind if captive insurance arrangement. When they feel that outside insurance carriers are charging them a lot, or they can’t get the coverage that they want, then they set up their own insurance companies.

The parent insurance company creates a captive option that allows you to have self financing options to buy insurance coverage. When you buy insurance from a company, then you spend cash on buying their service, but that money is gone forever, but when you invest in captive insurance, then you have strong chances of getting back your payment.

It is the responsibility of the organization to pay money from the captive or from the business. Usually, captives are located at the places, such as Bermuda, South Carolina and Vermont where there are less arduous regulations and tax treatment is favorable. Renting or sharing a big captive is the right way in which small businesses and medical practices can take full benefit of captive insurance. You can get tax deductions and lower the insurance costs at the same time with one scheme only- it is really beneficial. It is good to rent a huge captive instead of owning your own captive if you need only tax advantages.

The reason to go for renting a captive is that a single parent captive may be forced to employ less than marginal services or the required standards. It is recommended for small companies to opt for renting since in this case, they do not have to pay for the expenses, like administrative costs licensing requirements etc. What you need is a captive or a captive insurance company for your tax reduction requirements.

So, to set up a captive insurance company, you need to rent or own a company by contacting the provider orgnization. Since it has a number of advantages, there are many small and medium companies and businesses that opt for this method to save money and taxes, and get the insurance of their choice. So you can get insurance and get many advantges from it.

Florida Becomes Latest Home To Captives

Nearly half of the states in the U.S. allow captive insurance entities to operate. Now Florida is joining the list, with Governor Rick Scott recently signing into law a measure allowing the formation of captive insurance companies in the state. The measure, H.B. 1101, allows the formation of single-parent captives, special-purpose captives, industrial insurance captives and captive reinsurance companies. The new law takes effect in July of this year.

Captive reinsurance companies are required to have a minimum of the greater of $300 million or 10% of reserves in capital and surplus. Captives licensed in Florida will be required to hold at least one annual board meeting in the state and appoint a registered resident agent to act on their behalf. Captives and captive reinsurance companies must pay a $1,500 application fee and a $1,000 annual renewal fee.

Captives Formed by Self Insurers to Reduce Taxes

A captive insurance company operates at the behest of and for the benefit of a noninsurance parent-owner company or group. A captive insurance company is self-owned by the very persons or group whose risks it insures. Ownership may be by a single parent or by a group of shareholders. The latter is referred to as a “multiple-owner captive.”

These entities resemble mutual insurance companies, but for a limited number of participants. The formation of a special purpose captive insurance company by an affiliate or controlled company should not be negatively influenced by the jurisdiction of formation; and, while captives provide insurance primarily in the areas of general liability and workers compensation, the structure can be used to address what once were considered more exotic risks (i.e. ransom, kidnapping, terrorism).

A captive insurance company is established for the individual needs of the owners or members, as opposed to third-party insurance. Tax advantages are not the principal reason for forming such an arrangement.

Although each captive is distinct, some common advantages are sought, including reduced cost of coverage, direct access to reinsurers, provision of broader or otherwise unavailable coverage, mitigation of the market swings of commercial insurance, improved cash flow, risk spreading, improved risk retention capability, and integration with an overall risk management plan.

Captive insurance companies represent a significant component of the alternative risk market. Due to their growth, strength, and utility over the past decade, captive insurance companies are no longer considered by many insurance professionals to be a truly “alternative” insurance market. The use of a captive is now seen as an integral part of general business risk management.