Differences between Insurance Agents and Brokers- Independent and Captive

You can hire an insurance agent, who represents the insurers as they sell you products, or you can hire an insurance broker or consultant, someone typically on your side, to represent your interests. You can compare the agent's services with those of so-called "low-load insurers," which sell policies direct to the public. Because both agents and low-load services are not allowed in all 50 states, there are circumstances where an agent will be the only choice, although the trend nationally has been moving toward choice, not restriction.

When it comes to agents, there are independent agents and "captive" or exclusive agents.
The difference is pretty much what you'd expect from the titles.

Independent agents represent any number of insurers and may change the firms whose lines they carry depending on whether they are satisfied with price and service. In theory, independent agents offer you more choices because they work with more companies that are competing for your practice dollar; in practice, however, they may only sell the options that bring them the most money.

Captive agents, as the name suggests, can work with only one insurer. The good news is that they will know the provisions of the policies better than an independent agent, because over time they will come to learn the company's offerings inside and out, rather than simply well enough to sell them. The independent agent may have too many insurers to become that well acquainted with the minutiae of each product.

Exclusive agents tend to learn lower commissions than their independent counterparts. Still, the lack of competition means that the independent agent may have lower-cost competition to bring to the table.

Meanwhile, insurance quote services may sound like a direct-purchase choice, but that's not quite true. The telephone and online quote services -- which promise the best available rates on simple policies such as term life -- effectively are independent insurance agencies representing many companies. By doing a bulk business, they cut costs and offer basic policies at a discount.

Still, the effect is buying a policy through an agent, without the benefit of the service you might expect from hiring someone local. In addition, the great prices don't always turn out any better than what you can get from an agent in town, because the quote services offer bare-bones "teaser" policies to get you interested. You may not qualify for the policy -- your health isn't way above average, for example, or you fall above age restrictions -- or the agent does a needs analysis that shows you need coverage beyond the basics, and suddenly you are looking at a higher-priced policy that is no better than what you could have gotten from your local seller.

Ultimately, however, your choice may come down to completely personal feelings about whom you want to represent you. My own insurance situation is a perfect example of this.

Years ago, when I was the rare consumer who went looking for insurance products, my wife Susan -- the most patient and understanding woman in America -- told me to do the legwork on my own, using my resources, and to get her involved only when I was ready to hire an agent or sign a policy.

So I did my background checks and other work to pick an advisor. I also worked with an online quote service. Ultimately, I settled on George as the independent agent I most wanted to work with. He picked a policy from a Michigan insurance company; the quote service offered me identical coverage from the same company for $72 per year less. (It's not that George's actual commission was $72, it's that the policy through him cost that much more when all costs were factored in.)

So I had George over to the house to show me the details of the policy and his service. Now my wife was involved, getting a sense of the man and his products. So when George left that morning, I offered her the choice: In the event of a disaster, she could have George or she could have a toll-free phone line and have to tell a stranger that she's policy number X and that there's been a disaster.

"So it's $72 a year for George," she asked. "I'll take George."
By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2016. Content published with author's permission.

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