Is the term “independent agent” an oxymoron? After all, you can’t buy insurance from just any carrier when you enter an independent agency office–only from those insurers the agent represents. Is that fact made clear to prospects walking in the door, or to clients who stick around over the years? And in these times of full disclosure, should these inherent limits on carrier choice be automatically revealed to all who do business with agents?

This conundrum first struck me back in late April, in my first face-to-face meeting with J. Robert Hunter, insurance director of the Consumer Federation of America. We had been talking about the controversy over contingency fees, and the problems posed by insurance producer compensation.

That is an argument to be continued on another day, but for now, I would like to focus on the point Mr. Hunter made about the fundamental relationship independent agents have with their carriers–contracted to work only with selected insurers, and certainly not representing all companies at any given moment.

“Agents never explain to their clients that they are tied to a finite number of companies, and that there might be others out there with better prices, coverage or service,” he noted, adding that “most consumers don’t have a clue” about this fact of insurance life.

This situation in and of itself sets up conflicts of interest, according to Mr. Hunter. He argued that an independent agent who is asked about TV commercials run by Carrier W, but who only represents Carriers X, Y and Z, is going to sell the prospect on X, Y and Z, even if W might be the best fit for that particular buyer. The same would hold true if the prospect walked into an agency representing Carrier W, curious about what X, Y or Z had to sell.

Of course, an independent agent offers far more options for consumers than captive agents or direct writers, who represent one and only one carrier. But Mr. Hunter’s point was, what if the carrier with the captive agency force has the best price? Would the independent agent ever refer them across the street? Not likely. Thus, the inherent conflict of interest.

Should the consumer be made aware of these dynamics as part of standard disclosures, both in terms of what they gain by working with an independent agent, as well as what they might be losing?

If so, the same standard should apply to captive agents and direct writers. They should disclose to clients that they represent only one insurer, are not able to place business with any other carrier, and warn insureds they could be left up the creek if the one company the captive agent represents decides to cut its exposure in a particular market, or take a hike altogether.

What do you folks make of all of this?