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The 12 month race to replace

How and when to leave your captive agency behind you

Arguably captive companies can offer the right person a good solution to cut their teeth in the property and casualty business. They often offer financial incentives such as seed books or enhanced commissions during the startup phase. These perks can help agents overcome the financial struggle during the early stages of the agency. Unfortunately the perks don’t last long and agents can start to find it difficult to keep the lights on shortly after starting the business. This is a result of a combination of events taking place at the same time. A bounty of free time to make new sales and fresh energy can cause a new business to grow rapidly but eventually the phone begins to ring with needy clients and the service work begins to eat away the profit margins.

As the need for servicing begins to rise, captive agents usually experience shrinking commissions at the same time. The initial perks of enhanced compensation start to dry up and the agency starts to recognize normalized commissions percentages. The rising cost of rates can start to cause attrition in the book, thus making it hard to replace with new sales. Putting it plainly, the good days are over. The agency is starting to struggle and the owner is often left to figure out the solution on their own.

I strongly suggest you continue reading if this has happened to you and you’re thinking about making the captive to independent change.

Before I begin, let's consider the potential of your current situation. Below is an example of what I often see when talking to agents that are in this type of bind. The revenue may have been greater in the beginning but by the time I get a chance to speak with them it is starting to normalize.

Captive agency example looking for independent options:

  • Agency Tenure 3-4 yrs

  • Normalized Commissions Rate 10% or less

  • Agency Size $100K-$200K Gross Revenue

  • Mix of Business 90%+ PL / 10% or less CL

  • Avg. Closing % 10-20%

  • # of Staff 1-3

This type of agency is usually operating in the red. The agent is starting to lay off staff or at the very least considering it. There is no longer a marketing budget and they are starting to do most of the non-revenue generating tasks in the business thus preventing any new growth.

The elephant in the room is “How do you make the change without experiencing any pain”? While I would love nothing more than to tell you there is an easy fix, I just can’t! However I can tell you that it can be done and this is how to do it.

The strategy to make the move

Here are some things to consider before getting started.

  • Independent agencies usually experience 30-50% closing rates or even see higher depending on the circumstances.

  • Independent agencies that work with less carriers are more efficient. Don’t get caught up in the game of wanting too many carriers. 90% of independent business is written with 10% of the carriers.

  • Commercial Lines is a game changer for independent agencies. Most captive agents struggle to write Commercial Lines caused by the lack of appetite but its a wide open playing field on the independent side. I strongly encourage you to add as much commercial to your book as possible. The premiums are much higher than personal lines and the commission percentages are often higher too.

  • Life sales can add a large amount of cash flow to the business. It's not uncommon for Life commissions to pay as high as 100% of the first year premium. It pays as earned so persistence will enhance the compounding effect it will have on your business.

Phase One: Start leaning out your business. Any additional weight that you take into your new agency will only make the transition harder. This may come in the form of cutting staff or downsizing office space to reduce operational expenses.

Phase Two: Once you’ve trimmed the fat, it's time to start gathering data. You should be gathering as much prospect data as possible. The bigger that list of leads is when you start, the better your odds will be. This will provide two very important things, first it will help generate cash flow from immediate sales and second it will expedite the learning process through rapid quoting and binding. I want to be very clear, I am not advocating that you take your current clients from the agency and I am not telling you to violate any type of non-compete or non-solicitation agreement that you may be obligated to follow.

Phase Three: If you are going to join a group, make sure you contract with them at least 30 days prior to leaving your current agency. This will provide you with enough time to establish an E&O policy and build a strategy around what carriers you will need. The day after you leave your current agency you should be ready to submit the carrier applications. It will reduce the waiting time to receive the carrier appointments thus expediting the process of quoting and binding as well as collecting commissions.

Phase Four: Hit the ground running. Dig into the data that you gathered in Phase Two. Make sure you and your staff are following a strict set of processes such as asking for referrals and cross sales. You should also be asking for google reviews from everyone you help. The more reviews you have, the better your agency will rank on search engines. Set goals and expectations of your staff such as one household policy per day from each person. Create incentive programs to increase production. It may cost you more to capture new business but remember, the business is about renewals.

Phase Four: Keep prospecting! It should go without saying but I'll say it anyways. You should be stacking the lead funnel and there is only one way to do it, get busy networking or by buying leads. Do not spend your time on non-revenue generating activities by moving your stapler around the desk and hoping the phone will ring. Good businesses aren't built on HOPE, they're built with consistent revenue generating activities.

The end result

Let's take a look back in time to the example of the agency situation I gave above and compare that to a new independent agency that followed the proper steps. If you recall, the typical captive agency generates between $100-$200K in gross annual revenue. For the sake of argument, let's use Texas premiums as the base for this comparison.

Independent agency statistics

  • Location TX

  • # of producing staff including you 2

  • Book mix 80% PL / 20% CL

  • Avg. closing % 40%

  • Avg. quotes per day per producing agent 3

  • Avg. premium per household $3,000

  • Avg. gross Commission % 13%

  • Avg. gross monthly Life premium $1,000

Results based on a 22 work day monthly average

  • Total household policies written 52.8

  • Total premium written $158,000

  • Total gross P&C commissions $20,592

  • Total gross Life commissions $1,000

  • Monthly grand total revenue $21,592

  • Annual grand total revenue $259,104


As you can see from the example above, recovering is in fact possible by executing the right strategy. Obviously there are always variables that will come into play. They should be considered but generally speaking the solution is more about consistent quoting activity than anything else. It’s very common for captive agents to be mystified by the thought of having several options for their clients, but the agent that focuses on driving consistent lead traffic and efficient quoting and binding processes will always grow much faster than agents that chase every risk and burns up their time while doing it.

Want to learn more about how to start an independent insurance agency? visit our website at www.pacificcrestservices.com or contact us at 888-938-4197.


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