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Types of Insurance Agents

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency...

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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insurance agency

How many times have you heard the phrase, “Call your local Allstate Agent,” or “Contact Progressive Direct today?”

And what about the quintessential “Crazy Eddie” type independent agent who tells us “All insurance companies are stupid!”

You may be wondering what the real difference is between these types of insurance agents?

Well, while there are many variations to these models, it usually boils down to one of the following scenarios.

Either you purchase insurance direct from an insurance company or through a captive or independent agent.

You Can Purchase Direct or Via an Insurance Agent

Below we highlight the most common channels to help you make an informed decision.

Similar to any other financial institution, insurance companies typically specialize in servicing predetermined groups of people, so it’s important to know where you fit in to this equation.

Tip: The greater the number of companies an agent is capable of working with, the greater the number of different quotes you can compare prior to choosing an insurance company.

Captive” or “Exclusive” Insurance Agent – This type of agent represents a single insurance company or a specified group of insurance companies, meaning they can only offer you one quote, or price, for an insurance policy.

These agents are easily identified, as the sign in front of their building is typically the name of a large insurer. These large insurance companies are typically advertised nationally on television.

Captive agents are generally not employees of the insurance company they represent.

These agents are paid a commission (or percentage) of the total price of your policy by the insurance company they place you with.

Well known examples of captive or exclusive insurance agents include Allstate, Farmers, and State Farm.

For example: If the total cost of your automobile insurance policy for one year is $1,000, and the agent is paid a 12% commission by the insurance company, the agent will earn $120 for selling you the policy.

The agent also gets a specified commission percentage if your policy renews with the same company.

Typically, “renewal” commission is equal to or less than new business commission because less work needs to be done to renew a policy. An independent agent is paid the same way.

“Independent Agent” – Independent agents represent as few as one insurance company or up to several dozen insurers.

An independent agent is able to shop your insurance rate with all of the insurance companies they represent; similar to how a mortgage broker can shop your loan around with multiple lenders.

Independent agents do not generally advertise nationally, nor do the companies they represent.

Independent agents are not employees of the companies they represent.

These agents are also paid a commission (or percentage) of the total price of your policy by the insurance company they place you with.

There aren’t any specific examples of these types of agents you would be aware of by name recognition, as they can be as unique as an individual agent’s name.

So you may see something like, “Bob Johnson Insurance agency”, “Access One Insurance”, or “National Insurance Company of Texas”.

For the record, don’t let a “dot com” at the end of a name confuse you. Some independent agents sell only via the internet.

Insurance Brokers – Brokers represent the customer rather than the insurance companies.

The difference between a broker and an independent agent is minimal.

As with independent agencies, these companies can be named after an individual person or by any number of other names.

Direct Writing System – This insurance option does not involve an agent.

The people you work with are sales people for the insurance company, whose duty is to sell insurance only for the company they work for.

Some examples of this type of insurance channel are Geico and Progressive direct.

It’s worth noting that Progressive also sells insurance through independent insurance agents (and they actually have two different rate classes).

Direct Response – This system involves no agents or sales people. Customers are solicited via direct mail, phone, or the internet.

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