To Insurance Agents: Captive or Independent?

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Obviously, pros to captive are brand recognition and help with marketing, office, signage, etc. Cons are limited products and pricing.

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you kind of just said it here. being an independent offers much more flexibility. where as the captive has built in brand recognition and marketing.
it also depends on what type of insurance and who you want to sell to.
captives are good for personal lines in certain areas and very small business (BOP packages).
if you want to do any heavier business/commercial/industrial/energy/environmental type insurance, then being an independent is the way to go.

I'm 32, so it would definitely be long term.
I also reside in a coastal area (gulf shores), and the company I represent is not willing to write much business in the area, so I am hamstrung when it comes to growing my book.

Thanks for the insights and feedback.

I'm an underwriter for a large national (well, international) commercial carrier and I gotta tell you, I don't know how guys do captives. They must structure in a lot of benefits I don't know about in terms of compensation, because you are definitely worse off from the perspective of limited product, appetite, pricing, AND underwriting.

I just think about how my independent agents play me - if they don't like my terms or price they threaten to go to another carrier until I change it or if I can't/won't they just plain say "**** you" and place it somewhere else. If you are a captive you have to just eat what your company says.

Also, say you have a buddy that owns 100 locations of something you could make a killing writing but your captive company doesn't want to write it, you're out of luck. But an independent just picks up the phone and starts dialing markets until he finds one.

What does 5x top line mean? Is that 5X agency revenue (agency commission)? Is that pretty standard evaluation when selling a commercial book or personal book?

I'm assuming it's mostly a commercial book? Sounds like you have a great outlook. Curious as to what type of loss ratio you have on average between all of your carriers. If you don't want to answer, I understand. Just trying to learn a bit.

Personal lines is significantly more valuable than commercial lines. And small commercial lines is significantly more valuable than larger accounts. Mortgage billed homeowner's policies for example, and for obvious reasons.

We had one carrier at -2%. Probably took down a large reserve. I think we ran right about 30% last year, which is very, very good. And not all years are like that. A good year for contingency checks certainly.

I'm largely commercial, and have a couple very large accounts. One children's toy manufacturer in China actually. Products liability for Big Wheels world wide. A client purchased their intellectual property, as well as some from Mattel, Revell-Monogram (I think that's the name of it) and Ertl. I'm a participant in the largest property insurance program in the world for public entities. I actually have one tranche of reinsurance I personally participate in on this one. It's something like a Lloyd's investor is the best way to explain it. Some others.

The bigger they are, the more labor intensive, and less valuable long term. Large accounts are discounted. Always paid for only as they renew by a shrewd buyer. Of which banks aren't. Not of my business anyway. So it's a dichotomy, smaller is slower income, not as sexy, but in the long run, much, much better business. Easier to sell at retirement. No one is paying $125MM for a top line $25MM agency. But there are many buyers at 5X and dollar amounts between $2MM and $10MM for example.

We treat all accounts the same. We risk manage even the smallest personal lines account. They are normally written well, and documented for when clients reject coverages. I practice what I preach. The agency's coverage has always been with the same carriers since 1955, notwithstanding price. My properties in Florida, Iowa and Wisconsin as well. I do shop Florida from time to time given how the market is changing due to lack of recent hurricanes.

So as a producer (and hopefully also a trusted advisor with an above average level of competence, as opposed to purely a sales guy), you'll want, and obviously need income. The larger the account, generally the quicker the income. But if you view ownership at some point as possible and a goal, I wouldn't necessarily ever turn down smaller accounts and personal lines.

A lot of it is what you value, time or money, and to what extent. A lot is your view. A lot of producers can sell, make an above average living, and never want ownership. Like real estate agents, a lot of them want to drive a new $75K car. At one point I valued that stuff. I've evolved. I value my time. Not that money isn't also important. I take a lot of vacations. I do things, but don't ever necessarily buy stuff. I'm in my 40's FWIW.

So I think your decision is your decision, and my experience is largely driven by my personal values. I sleep very well at night. I have free time. I do work hard, possibly a lot harder than some other business owners I know. I can't be everything to everybody, so I direct my efforts towards like minded people and businesses I can help where the time/revenue equation is a fit. I'm giving you two possible directions. Quicker revenue, and a very comfortable standard of living. Or slower revenue, but a better (to me at least) long term outcome. And I'm suggesting this is 100% your choice, and it will likely be driven by your personal belief system and values.

Edit - One investment I make invariably every second quarter, and based 100% on watching the weather, is either buying, or selling short regional insurance company's stocks. It has been my most consistently successful trade. It is hugely predictable based on weather alone. Tortfeasors are the great variable, but rarely trump weather. The latest was UFCS. I had gt it sub $30 last time around. I've been slowly selling it until present. No weather in the midwest. Take a look at their exposure on the east coast, in Louisiana, and also their Mercer division in California. If nothing significant, I bur prior to Q2 every year. Not very sexy. Pretty boring actually. Except I think it around $37 today. Not sure, haven't looked in a bit. I've been hanging on to some of it for longer than normal as I'm playing a bit of cat and mouse on the interest rate climate. But already sold most of it at a modest gain.

Thanks for the insights and replies.
Lotta knowledge in this thread.

I'm weighing my options and deciding this week.

FWIW, my captive is Farmers.

ALFA is big in Alabama. So is Nationwide

E&S Brokers to be clear. Not stock brokers, truck brokers, or any other brokers. Excess and surplus lines brokers. If you are an E&S broker, and you are not scum, I'd actually start doing business with you on a trust but verify basis.

That's how bad they are. Incompetent, and borderline dishonest on a regular basis. I'd consider letting you get a chance at our business by virtue of an internet post. Yes, they're that bad.

I must be doing it wrong. I find that invariably they work by crisis, and have no real understanding of what exactly the product they distribute is. Worse, I've found many dishonest. Now I'm not sure this is intentional, or dishonest through incompetence.

I suspect if you are in a hurricane region for example, this might be different with some local E&S brokers. I'd think there would be some local brokers very competent at placing high limit direct property due to geographic location.