Is It Better to Work with an Independent Broker or a Captive Agent?

Posted on February 1, 2011 in Life Insurance Canada News, Life Insurance FAQ
young businessman
Which would you choose,
Captive or Independent?

Independent brokers provide insurance solutions with a variety of insurance carriers, but captive agents generally only offer life insurance solutions with one carrier.

At first glance, it may seem obvious that independent brokers provide clients with a better value, but the following takes a closer look at the pros and cons of working with an independent broker or captive agent.

Independent Broker Pros:

1. Independent brokers are free to work with any carrier.

2. An independent broker should be able to find insurance at the lowest price. 

3. Independent brokers offer a wider product portfolio.

Independent Broker Cons:

1. Many independent brokers, although able to work with multiple carriers, only work with two or three.

2. Due to a large product offering, many independent brokers may not fully understand all the products they sell.

3. Many independent brokers have limited back office support.

Captive Agent Pros:

1. Since captive agents generally only offer coverage from a single carrier, they are more likely to have a better understanding of the products they are selling.

2. In most instances, captive agents have very good back office support.

3. Captive agents may have a stronger relationship with underwriters, especially those who have been working with the same company for a number of years.

4. in some instances, captive agents may offer a loss leader type policy from their carriers, which an independent broker would not have access to.

Captive Agents Cons:

1. The insured may pay a higher premium due to a limited or uncompetitively priced product portfolio.

2. A captive agent may be pressured by company quotas.

3. Captive agents may not be able to offer the appropriate insurance need for the consumer. For example, certain insurers don't offer 20 year term policies or disability insurance type policies, among their captive brokers, so those agents may not able to properly address the client’s insurance needs.

According to LIMRA the Canadian industry supports an average of 15,000 captive agents per year with a turnover rate of 16% an an average retention  rate of 25% over four years. Meanwhile, The Financial Advisors Association of Canada supports over 10,000 members as the largest Financial Professional Association.

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Now, it's your turn to weigh-in: Who do you prefer to buy from, independent brokers or captive agents? Leave your comments below!

28 Comments

  1. Tamara 02/06/2011 at 2:58 pm

    I am amazed at the misconceptions involved with being an independent broker. Having been a captive agent, sales manager for captive agents and an independent broker, I can say with much experience, the independent brokers have the ability to give better support and advice to consumers. The broker always has the advantage of being able to find the best solutions. The notion that brokers only represent a handful of companies is completely false. As is the idea that the back office support to brokers is somehow substandard. The support, training admin help to the independent broker has been unparalleled. Loss leaders available to captive agents are also available to brokers because the captive companies generally have both captive advisors as well as independent brokers marketing their products. It is un-true to say that captive advisors know the products better than the brokers. Knowledgeable brokers know the products, knowledgeable captive agents know their products. You can find people who don’t keep up in both the brokerage system and the captive system, this is simply a matter of work ethic of the individual agent.

  2. Richard Parkinson 02/06/2011 at 7:16 pm

    I have been both, starting my life insurance career with Freedom 55, then RBC Insurance, as a captive agent, and since 2006 as an independent. I think the biggest revelation for me on leaving the captive world for independent, was that as a captive agent I was shielded completely from what the competition was doing. I had no idea what other options existed.
    It can be clearly stated that an independent agent has more product to access and offer, provided of course the independent agent chooses to offer them. I have discovered that some independent agents do tend to only offer one or two companies products no matter what, whether out of laziness, or to ensure reaching targets for prizes or trips, and I hope that they are the exception rather than the rule.
    For myself, I would not want to go back to the captive agent model, as I don’t feel I can offer my clients the best solution for all of their needs, in part because no one company has the best products in all categories, or doesn’t offer products for some solutions, e.g. some companies don’t offer whole life, many don’t offer DI or CI, and very few offer long term care. If a captive agent doesn’t have the solution for a client’s need, one would hope they would suggest a competing product, and perhaps refer the client to an agent who can provide a solution. I know many captive advisors, and can’t recall ever getting a referral for a product I can provide and they can’t; I wonder why?
    As a London Life agent I did not have access to a non-medical plan, so I would have to take my chances that a medically underwritten policy would not be rated too badly, or be a decline, even though I was expecting it would be. Now as an independent, when a client appears to be in a rating or decline possibility, I will sell them a non-medical plan first, and then apply for the better plan. As an independent I have this option, as a captive agent I typically don’t, and obviously this flexibility is in the client’s best interest.
    So the answer to this question is a simple one. Considering what is in the best interest of a client, the independent agent offers the best solution. Of course this assumes the agent is considering the client’s best interest before his or her own, and sadly I have run across too many instances where this is not the case.

  3. Brian 02/07/2011 at 9:33 am

    As an independent broker I have found my ability to offer clients the best products at the best prices has only been helpful. The notion that we are spread thin with product offerings and weak support is far from the truth. In fact the ability to offer many different products not only allows me to give clients the best policy for their needs but it also allows me to guide clients on their current policies and give them better advice on what to do with them.

  4. Aman Kapur 02/07/2011 at 11:04 am

    This debate has been going on for years. On taking a closer look, it appears that there are more and more captive agents who are becoming independent brokers as against brokers becoming captive agents. I have worked in both channels and the article above does provide with a detailed insight and an appropriate comparative. As an independent broker, I feel that clients do prefer the options provided to them from different companies. It does comfort them to know that as brokers you represent several carriers. However, it is critical to live up to the expectations of those clients. The way to do that is to actually run your practise like a business with the appropriate back-office and other related infrastucture. Most often, clients are looking for advisors, planners and consultants and not just insurance sales agents. As an independent broker with a constantly evolving infrastructure, I feel that I can meet their expectations.

  5. William Shung 02/07/2011 at 3:43 pm

    Without any doubt, independent brokers are in the unique position to satisfy client needs in terms of product features and pricing because a professional broker with the clients’ interest in mind will have access to a comprehensive product portfolio from a full range of life insurance companies. The experienced broker will be conversant with what is available in the market and knowing his clients’ requirements should be able to find the best fit for the client.

    The listed “cons” of independent brokers do not apply to brokers with integrity because it is the professional brokers’ responsibility to overcome these “so-called” barriers which impair the quality of their service to clients.

    Insurance companies are finding it non cost-efficient to sustain a large sales office with captive agents. Naturally, they would want their agents to bring in sufficient business to justify the costs incurred. As such, they exert pressure on the agents to meet monthly, if not weekly, sales quotas. Proper closing of a piece of business and client servicing requires time and effort. Being pressured, the agents will find it difficult to maintain their best service whilst at the same time closing enough sales within a specified period of time. Also, clients with captive agents may pay a higher premium and/or may not get the best product to meet their needs because the captive agents are faced with a limited and/or uncompetitively priced product portfolio.

    As for captive agents having a better understanding of the products they are selling, having a very good back office support and having a stronger relationship with underwriters are all myths. Having worked as a captive agent and as an independent broker, I can vouch that in the business world it is your production that counts. You’ll get all the support you want whether you are a captive agent or an independent broker if you are a valued advisor.

    William Shung

  6. RICH NEWTON, CFP, CLU, ChFC, RHU 02/07/2011 at 4:03 pm

    I was a captive agent for many years. I found it a disadvantage at times because I couln’t offer the lowest insurance rates if a person was shopping. Now I find I get the business of the client who is happy becsuse he or she saved money
    And I know the products of the competitors even though I deal with several.

  7. Lindsay 02/13/2011 at 2:30 pm

    I think you’re full of hot air.

    Too much is made of price. You get what you pay for and most instances the difference in premiums is just a few dollars.

  8. Richard Parkinson 02/13/2011 at 4:47 pm

    To Lindsay: I do not understand your point, i.e. are you saying there is no difference between captive and independent because there is little difference in price? If so I suspect you are not very knowledgeable about the life insurance business.

    Let’s suppose you are a captive agent representing Co-operators, and the client identifies they have a few medical issues such as diabetes, overweight, sleep apnea, to name a few, any one of which, or combination will likely mean a rating or perhaps a decline. The captive agent has two choices,
    1.suggest the prospect contact an independent agent for a non-medical plan first to ensure the best non-medical coverage first, then apply for the Co-operators policy to see if he/she can do better.
    2.Write the prospect up, and hope for the best.

    Should the client be declined, then their options for an alternative are severely limited. Another scenario is for permanent coverage, where again the captive agent has to hope for the best.

    For medically challenged permanent insurance, I like Canada Life with their ASTRA program which can make a big difference in the price the rated client pays.

    I think you will find most agents consider price is not the most important criteria, rather plan features, conversion options, underwriting experience are probably more so. Also for term policies especially term 10, the renewal rate is perhaps more important than the initial term rate for most applicants.

  9. Justin 02/13/2011 at 5:34 pm

    Lindsay, Your dead on in most independent brokers sell Whole Life or Universal Life policies to pad their pockets with big commission cheques.

  10. Richard Parkinson 02/13/2011 at 7:33 pm

    To Justin: What crap. You have obviously never been exposed to a London Life agent, a captive agent company, who are famous for selling whole life and UL policies. I was personally the victim of an unscrupulous London Life agent who churned me every 3 years with whole life policies. It wasn’t until I got into the business that I realized how badly I was treated, which also greatly impacted my retirement plans. So selling whole life and UL policies is certainly not the sole domain of independent brokers for sure.

    How about RBC career agents who can’t sell other than RBC insurance, and who don’t have a whole life product to sell, which may be a better choice than UL.

    There are dishonest and unethical brokers in both camps, just as there is in any other profession, whether investment broker, auto mechanic, dentists, etc.

    There are lots of legitimate applications for permanent life plans, too numerous to go into here. For the record, most of the brokers I know consider that life insurance should be sold, first and foremost, to cover a monetary loss due to death. The amount, current age of the annuitant, the duration of the requirement are just the obvious consideration when choosing a plan, whether term, permanent, or a combination of the two.

    Generalizations are eas

  11. Matthew Farley 02/14/2011 at 10:38 am

    I feel the most important thing for clients is having options when approaching financial planning. A captive agent is handcuffed by his/her lack of ability to provide the client with all the potential options available to them. I can’t speak for all advisors however I know that being an independent broker is one of the most beneficial aspects of my services to my clients. I have yet to run into a situation where I can’t find a product offered by some carrier in order to solve their problem. I have spoken to current captive agents as well as past captive agents who’s primary reason for leaving their agency and entering the broker world is because of the constraints that they have to deal with. I really do not see the captive pros outweighing the independent broker cons in this debate.

  12. Francis 02/19/2011 at 4:18 pm

    I think the term “captive” is inaccurate is someone who works at Mercedes a Captive salesperson.

    I set my own hours and report to myself and I also agree with the above point independent advisors don’t have as strong a relationship with underwriters. I can call our underwriters and they actually know who I am.

  13. Ami Maishlish 02/20/2011 at 7:39 pm

    Except for the ‘bank-type’ call center insurance telemarketers, there is no longer an easily discernible delineation between “brokers” and “captive agents”. There are those “brokers” who elect to focus their practice to representation of one or only a handful of insurers, and are not properly equipped to research the market. On the other hand, there are “captive agents” who represent one or only a handful of insurers, but who do, and are properly equipped to, thoroughly research the market in the course of their practice.

    It is the DUTY of every advisor – regardless of how (s)he holds out – to professionally, objectively and objectively examine and assess the consumer’s needs, circumstances and priorities so as to recommend the most suitable solution (or partial solution) alternatives. Nothing less is satisfactory from a consumer interest standpoint, and IMO as a consumer, anything less is either negligent or incompetent or both.

    Also, and also from the consumer-interest standpoint, and regardless of how ‘small’ the difference may be, there is no justification whatsoever for additional net premium costs unless there is a commensurate concrete qualitative and/or quantitative difference that is meaningful in relation to the consumer’s needs and objectives.

    Titles squeak but deeds speak.

    Ami

  14. LSM Insurance 02/21/2011 at 9:40 am

    Thanks for sharing your insights Ami.

    You make some very interesting points. Do you feel the number of insurance providers offering insurance through call centres will increase in the coming years.

    Interestingly most of these plans are quite expensive. HSBC and Canadian Tire Finacial Services both offer direct Term plan via their website and call centres that are in some instances up to 50% higher than equivalent coverage.

  15. Dave 02/22/2011 at 4:07 pm

    I believe that consumers want objective and unbiased advice when it comes to their life insurance. The best way for consumers to find this is to work with an independent broker.

  16. Ted D 03/05/2011 at 3:58 pm

    Ami, I disagree if I visit a BMW dealer do I make him/her research Mercedes and Lexus options.

    Ni if he /she has a good product and delivers quality advice that should be sufficient.

  17. Frank 03/13/2011 at 11:09 am

    Hi Ted,

    An independent broker simply delivers more options. This translates into better deal for the consumer.

    Captive agents may not have products necessary to fufill a specific need. Case and point what happens if the consumer is looking for a disability insurance plan with a return of premium option – only a handful of companies offer this type of policy and many captive agents do not have access to this type of plan.

  18. Louis 03/19/2011 at 8:14 am

    Would career agents have access to any products that Independent brokers don’t. Don’t some insurance companies offer plans exclusive to their in house salesforce. Is this not a distinct advantage of working with a career agent.

  19. Richard Parkinson 03/19/2011 at 9:28 am

    It is possible, but the same could be said the other way, i.e. the broker has access to product the captive agent does not. Here are two examples, one for each:
    1. Cooperators seem to have very good rates for certain ages for term 25 and term 30, in some cases $10-$15 per month less than the nearest competitor on a $120 premium. Another is Primerica, who for some term 30 plans have the renewal increasing annually rather than for another 30 years which can be a lot less expensive for 2-5 years after the initial 30 year period, albeit not a lot of people renew these plans.
    2. RBC Insurance captive agents can’t offer a whole life product, because RBC doesn’t offer one.

    So on balance I would say that, as in my case, contracted with 14 companies, the odds of my being able to offer a more diverse product range is much higher than the captive agent. Also I am aware that many Freedom 55 Financial agents, contrary to their contracts requiring exclusivity, have contracts with other companies through MGAs, to provide access to product they don’t offer, e.g. Long Term Care.

  20. Ted D 03/19/2011 at 11:07 am

    Just to be devils advocate Richard. Wouldn’t the best scenario be a Primerica or State Farm agent who has arrangements with outside carriers

  21. Richard Parkinson 03/19/2011 at 11:38 am

    Well not for me. I was a Freedom 55 agent for 2.5 years, and decided I was going to play by the rules, so I didn’t have a contract outside the organization. There was one agent who did lose his F55F contract for outside activity, partly because he was so blatent about it. I was able to provide long term care policy to a client, but the hoops I had to go through to get the exception to do the business through Manulife was a nuisance. Interesting at F55F we were able to write some Manulife policies, but not all products, e.g. DI & CI, because we were expected to write GWL DI & CI instead.
    I work with a F55F advisor who has a large book of business with them, and he doesn’t want to jeorgize losing that business, so rather than risk it, he refers business he is unable to do to me, e.g. non-medical coverage. He has learned that when he has a client who is a likely rating or decline, to have me get them something from CPP in place first. 80% of the time they are declined after the CPP plan is in force from the medically underwritten plan, so the client has a policy he/she wouldn’t otherwise have, and the agent looks good to his client.

  22. Franklin L 06/04/2011 at 1:44 pm

    Most broker only deal with one or two companies anyways to maxamize their commissions.

  23. Franklin L 06/04/2011 at 1:45 pm

    Another point the larger and more stable companies use a career sales force they are better able to track the activities of their sales force.

  24. Franklin L 06/04/2011 at 1:46 pm

    One Final Point many so called captive agents are allowed to deal with other insurance companies on a single case agreement.

  25. Richard Parkinson 06/04/2011 at 4:36 pm

    I agree that is possible for a career agent to get a special case permission, and as a former London Life agent, I did that once for a long term care policy which at the time London Life didn’t offer. I can tell you it was still difficult to get permission, and I doubt if it had been for a product available from London Life, e.g. whole life, I probably wouldn’t have gotten permission.

    As a realistic second point, captive agents typically don’t have access to the illustration software, and even if they did, for the more complex products like UL, they wouldn’t have the training or access to the wholesaler to find out the nuances of the product, e.g. surrender charges in year four for Canada Life Millennium UL can either be 700% if YRT, 400% if level, or zero if 20 pay COI. Or with Assumption Life Flexterm, consider the difference in cost between $250,000 and $250,001, and know when to quote one vs. the other.

    So yes it is possible, but in my opinion unlikely.

  26. Richard Parkinson 06/04/2011 at 6:16 pm

    I just saw the comment “Most broker only deal with one or two companies anyways to maxamize their commissions.”

    Sadly I have to agree with this comment, and I find it disgusting. I am contracted to 17 companies for a reason, over my 8 years in the business, I have had to go this far afield to meet my client’s needs. I have never been close to winning a trip or conference, and personally I think they should be outlawed, as they are not in a client’s interest in my opinion.

    I sell a lot of Assumption Life Flexterm these days, and they have the worst commission rate for term of any company that I know of. I wonder how many bokers never offer Assumption because of this?

  27. James 04/27/2013 at 8:46 am

    It’s a well known fact that most brokers only deal with one or two companies to maximize their commissions. So stop pretending that they are doing a better job for their clients.

    I hav a full slate of Term policies rnewable to age 95 with a unqiue living benefit feature that is unavialable to your brokers. Ha!

  28. LSM Insurance 04/27/2013 at 9:21 am

    James, you have a point that brokers can not sell certain captive based products. But this is far outweighed by their ability to see a full range of Term and Permanent Policies

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