Independent or Captive Auto Insurance Agency?
Whenever the time comes to get auto insurance or to renew an existing one, the question invariably arises about which option offers better rates: an independent insurance agent or a captive insurance agent? That’s a great question, but you need to be asking about more than just the final figure of your premium comes to; there are several important issues to consider before you make a decision. But first, let’s understand who were referring to when we talk about independent and captive agents.
Independent insurance agents can be described as insurance “retailers” like a superstore that stock and sell multiple products of the same class. Independent insurance agents are usually free to work with a range of insurance companies. These types of insurance agents usually choose the companies that they think offer the best value to the customer segments that they are trying to serve. A captive insurance agent on the other hand, works for only one insurance company and offers only the insurance products of the insurance company to which they are bound.
So what are the differences that should influence your selection?
With an independent insurance agency, you’re spoilt for choice, because they can offer you a variety of insurance products from different insurers, enabling you to choose the one that suits you, without having to go through several insurance providers first. They will also explain the pros and cons of each insurance product in a way that you can understand, which ensures that you don’t go in blindly.
On the other hand, captive auto insurance agents represent just one insurance company, and so you can only access the bouquet of policies and coverages offered by that one company. That means your choice is severely limited. On the other hand however, you get direct connection to the bigger insurance companies, since captive agents are usually employed by the bigger companies; going through captive agents may also provide better customer service as these big‑time insurance companies have call-centres that operate all the time. It is worth pointing out though that these days, even smaller companies are able to provide good customer service, sometimes better than bigger companies, all thanks to technology.
In summary, customers who buy directly from big-time auto insurance companies through captive insurance agents are usually limited to what those companies have to offer not only in terms of coverage and policies, but also in terms of procedures and processes. However, those who buy from independent agents have a higher probability of getting the kind of policies that they need, rathe than what is available.
It is also worthy to note that customers who purchase insurance products from independent auto insurance agents would be able to know that their money is not going directly into the large advertising budgets of large insurance companies, but rather supporting smaller to medium size businesses.
With regard to payment, independent agents receive agency fees from insurance companies, unlike captive agents who receive salaries from one specific company. Independent agents receive commissions according to a percentage of the policy. This agency fee is usually higher in the first year and then a compensation is paid to the agent based on renewals and continued business with the insurance company. Other ways through which an independent agent can be paid is to charge their clients an advisory fee or a finder’s fee. Based on this mode of payments, one can conclude that the fees for the independent agent might be higher as it is either charged to the client, or charged to the insurance company on a continuous basis. However, because they have more variety to at different price points, the cost may not necessarily be higher.
It is obvious that both captive and independent auto agent have their pros and cons. When considering which option works best for you, remember, don’t only focus on price shopping. While you may get a lower rate with one option, ask yourself whether you’re getting what you really need, rather than what is available.
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