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The Coexistence Of Multiple Distribution Systems For Financial Services: The Case Of Property-Liability Insurance, Allen N. Berger, J. David Cummins, Mary A. Weiss
The Coexistence Of Multiple Distribution Systems For Financial Services: The Case Of Property-Liability Insurance, Allen N. Berger, J. David Cummins, Mary A. Weiss
Faculty Publications
Property-liability insurance is distributed through a direct-writer system, where agents represent one insurer, and an independent- agency system, where agents represent several insurers. Independent-agency insurers have higher costs than direct writers. The market- imperfections hypothesis attributes the coexistence of the two types of insurers to impediments to competition, while the product-quality hypothesis holds that independent-agency insurers provide higher-quality services. We measure cost efficiency and profit efficiency for property-liability insurers and find strong support for the product-quality hypothesis, implying that independent-agency insurers produce higher-quality outputs and are compensated by higher revenues.