A question about captive contracts

[The New Guy]

I have read a lot of posts about leaving a captive company and going independent. Many have stated, that you must wait 3 to 6 monthe before you can write policies after you leave. What I want to know, is that just with the companies that your captive company is appointed with, or am I not allowed to write with any other company for that period of time?

 

[senior-advisor-indiana]

You usually cna write anything but the captive companies' insurance. The biggest restriction is you cannot switch your clients to another company within a cetain amount of years, usually 2. It is called a non compete clause.

 

[Frank Stastny]

Probably the most important part of a captive contract is how long will it take before you are vested. Once you sign a captive contract with an insurance company they keep all your commissions if you leave before X number of years. (The time it takes to become vested.)

If that company also has an independent branch in addition to the captive branch you will most probably not be able to write for that company any longer until you can become appointed to their independent branch. This typically takes several years. (If you move from a captive to an independent appointment within the same insurance company you will still lose the renewals you accumulated when you were captive.)

In other words, if you sign a captive contract and the contract says you will not be vested until you have been there for ten years and you leave before ten years you will lose all your renewals and be "starting from scratch" again.

However, the day you leave your captive company you can become appointed with all other companies and begin writing apps for those companies. If you try to roll any of the clients you wrote while you were captive, and the company you were captive with finds out, they will typically charge you the full twelve months premium for the person you moved to another company.

I would never consider working for a broker that requires one to sign a contract and where your commission checks come from the broker as opposed to coming from the insurance company. Some brokers will get paid by the company and then pay you. In a situation like that the broker is the agent of record for commission purposes and if you leave the broker you also leave all your commissions behind.

No, they will not be "nice guys" and keep giving you your commissions. That's why they receive all the commissions and "dole out" a "small portion" of what they receive to the agent. They know a large number of agents aren't going to stay very long. Some of them hope the agent doesn't stay very long.

 

[midwestbroker]

You are not supposed to flip your book, but it happens all the time. I had a person call me and ask me about the competition. She said the guy that sold her Humana last year is now selling the competition (Coventry) and switching everyone to that.

 

[senior-advisor-indiana]

Well that would be a good move here in IN because humana is the worst plan here and I think it should be illegal for people to sell it. There main selling feature in there silver sneakers program (what a joke) and they have a 5000 Out of pocket maximum. 2 times what the other plans are

 

[Frank Stastny]

You are not supposed to flip your book, but it happens all the time. I had a person call me and ask me about the competition. She said the guy that sold her Humana last year is now selling the competition (Coventry) and switching everyone to that.

I agree totally, however, it is becoming more and more a common practice among agents working in the senior market. Brokers even encourage their agents to do this.

Every time a "new company" moves into a state with rates a couple of dollars less, agents scramble to move their clients to that company. This is not new money. I have found that if you stay in contact with your clients that a reasonable increase is not going to cause them to go shopping.

From talking to agents in other states I believe Missouri agents do that more than agents in other states because of our Guar. Issue on the client's anniversary date of their policy.

I think it is a very damaging provision to those on Medicare. Companies like Continental who have tried to keep premiums down by having stiff health questions on their app are having their clients punished by agents moving chronically ill clients on their anniversary date. (I believe Calif. has the same provision.)

Premium increases are the direct result of claims. The more claims a company experiences the higher premiums will go. The Fed stipulates that if a company is paying out less than 65% of the premiums collected in claims, the company must either refund premiums or lower premiums.

As the percent of claims a company pays out begins to go substantially above 65%, the company can then request an increase.

I knew this was going to happen even more with Advantage Plans because of the small amount of renewal offered by those plans. CMS has created an atmosphere where the only way a lot of agents selling only Advantage plans can generate annual income is by moving clients from one Advantage plan to another each year to get the initial commission.

If the move is in the best interest of the client that is one thing. If it is to benefit the agent then that is something totally different. My biggest concern is that in a lot of cases it may be to benefit the agent.

Coming from several years of being captive, I learned that with a little work staying in touch with your clients and building loyality, they aren't going to drop you to save a couple of bucks. The company I was with went through three consecutive years of 35% increases and I lost very few clients. A lot of them are still with that company and I still get a very nice renewal check from the company each month even after having been gone for over seven years.

 

[senior-advisor-indiana]

Those are pretty loyal clients Frank. You are definetly doing something right. I notice alot of your success comes from you keeping in contact. IT definetly supports the use of a client management system.

I see no problem with moving clients to another company as long as it is due to a huge increase.

 

[Frank Stastny]

Senior, I totally agree as long as the move isn't into a company that is less expensive today, but one you suspect within two years is going to have a huge increase. I have seen this happen a lot.

A new company "blows into town", dirt cheap rates and then a couple of years later has a huge increase. If your client has incurred health problems during that time they are screwed.

Two companies have done that here in Missouri in the last three years. I know agents who spend the bulk of their time moving clients from one company to another because they are afraid if they don't move them they will cancel.

I am very cautious about the companies I license with just for that reason. I usually wait for a year or so to license with a new company. I still haven't licensed with World, the newest kid on the block.

Right now their rates are almost exactly the same as Continental's. I really don't see any benefit at this time.

Interestingly, I have contacted a lot of clients who have been with me a long time and offered to switch them to a less expensive company and they say they want to keep the policy they have.

Even though my commission would be a lot higher with the less expensive company I don't press the issue with them. I simply tell them that if they change their mind to let me know.

You've got to love loyal clients.

 

[Anne]

Captive contracts..

Well written Frank.

Over all though, you are the one creating "your own" loyal clients. It does not matter how much money you might save someone by switching companies or making the offer.

If your client for what ever the reason does not like "you" you will lose them.

I set up an account with a financial advisor about 10+ years ago. He ticked me off last year.... I told him after I transferred all but one small amount of business from him... that he will have to "earn" back my business.

He has since been sending cards, e-mails etc. it does not change though what happened. AND I no longer send him multi-million dollar accounts from "friends of mine" who have more money and the time to invest.

A hard lesson yes, to learn but one well taken.

All goes back to ICS.

Insurance Customer Service!

 

[Frank Stastny]

Laurie,

I totally agree.

There are three things that should be of prime importance to every agent. ICS, ICS and more ICS. Writing new apps is almost a wasted effort if the client cancels in a few months.

I know so many agents who spend the first several months of each year just trying to replace the business they have lost so they can maintain their level of income. I think it is a lot easier to spend a little time staying in contact with your clients than it is to try to find new ones.

A lot of the insurance I sell is to people who are upset with their current agent because they have called several times, left messages and they never get a return phone call. They tell me they haven't heard a word from their agent since the day they signed the application.

I send my clients at least three personalized letters each year. By "snail mail", not e-mail. The birthday letters I send are by far the most popular. I create a cartoon at the top and each letter is personally addressed. I have been in a client's home and when they get their "insurance folder". they have every birthday letter I have sent them.

It doesn't take any time at all. I simply click a couple of buttons.

I tell my clients that if another agent wants to sell them a different policy to either call me or give that agent my phone number. Would you believe that other agents have actually called me!

If you take care of your clients, your clients will take care of you. I tell them that they pay my "salary", that makes them my boss. If I am not doing a good job for them, then they should "fire me". They like that a lot.