Independent Agent: What it is, How it Works

Independent Agent

Investopedia / Ryan Oakley

What Is an Independent Agent?

An independent agent is an insurance agent that sells insurance policies provided by several different insurance carriers, rather than just a single insurance company. The independent agent acts as a middleman to connect insurance buyers and sellers in order to facilitate a transaction. Independent agents receive commissions for the policies that they sell and are not considered employees of any specific insurance company.

An independent agent may be contrasted with a captive agent, who can only sell the products of the company they work for.

Key Takeaways

  • Independent agents are insurance agents or brokers that are not employed by any specific insurance agency.
  • Independent agents are, therefore, able to sell insurance policies from multiple companies, where they are paid on commission for each policy sold.
  • It is often beneficial for a customer to work with an independent agent because they may be able to quickly research multiple policies and rates across various companies.

How Independent Agents Operate

Independent insurance agents, like independent financial advisors, are thought to be able to provide their clients with a wider array of options when it comes to insurance products. They take into account the different coverage needs of the client and select a policy that provides the necessary coverage at a reasonable price.

An insurance agent that sells policies offered exclusively by a single insurance company is referred to as a captive agent. While the policies offered by a captive agent may be less expensive than those offered by an independent agent, it will be difficult for the client to know whether they are getting the best deal if only one option is made available. Captive agents may show the prices offered by competitors, but they will not be able to offer and sell those policies.

While independent agents can offer their clients policy options from a variety of different insurers, they may not be considered completely objective. Because the insurance companies pay a commission to the insurance agent when a new policy is sold, the agent may push clients to select policies that provide the agent with a higher commission rate.

Because independent agents are not fully supported by a single insurance company, they are often responsible for generating their own business. They may have to produce their own marketing material and manage their own operations, though they do benefit from the general advertising and marketing done by specific insurance companies. However, if the independent agent does not sell the policies offered by an insurance company that is conducting a large branding advertising campaign, the benefit will be limited.

Advantages of Independent Agents for Consumers

One of the major benefits of working with independent agents includes getting many quick quotes from multiple insurance carriers. If someone is shopping for insurance, independent agents are a great place to start checking out policies because they can check several different companies’ rates all at once. The more companies checked equals a greater chance of finding the best rate for you and your family. The time-saving factor is huge because a prospective policyholder only has to provide their information one time.

Independent Agents vs. Insurance Brokerages

Independent agents and insurance brokerage companies both take the sales approach of representing the customer first and offering a variety of products from different insurers. However, insurance brokerage companies are typically larger than independent insurance agencies.

Additionally, brokerage companies may be either independent or captive. Independent brokerages are not affiliated with any insurance companies, and they are able to recommend and sell clients any product that is in their best interest. Captive brokerages are affiliated with specific insurance companies and have contracts with specific providers to sell only their products.