Abstract

http://ssrn.com/abstract=1333291
 


 



Differential Compensation and the 'Race to the Bottom' in Consumer Insurance Markets


Daniel Schwarcz


University of Minnesota Law School

January 26, 2009

Connecticut Insurance Law Journal, Vol. 15, p. 723, 2009
Minnesota Legal Studies Research Paper No. 09-55

Abstract:     
This contribution to a symposium on insurance intermediaries analyzes insurers' compensation of independent agents and brokers in consumer markets. It focuses on various forms of "differential compensation," whereby an intermediary's compensation differs depending on the insurer with which the consumer ultimately purchases coverage. Such differential compensation, the article argues, undermines competition among consumer insurers with respect to non-price product attributes. This, in turn, increases the risk of a "race to the bottom" in consumer insurance markets, as insurers focus on selling the cheapest coverage possible that is consistent with legal restrictions. To address these problems, this article suggests that insurers who rely on independent agents to sell consumer lines of insurance should be prohibited from paying different rates of compensation to different agents for the sale of the same line of insurance.

Number of Pages in PDF File: 32

Keywords: Insurance, Commissions, Contingent Commissions, Agents, Brokers, Intermediaries

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Date posted: January 26, 2009 ; Last revised: March 27, 2014

Suggested Citation

Schwarcz, Daniel, Differential Compensation and the 'Race to the Bottom' in Consumer Insurance Markets (January 26, 2009). Connecticut Insurance Law Journal, Vol. 15, p. 723, 2009; Minnesota Legal Studies Research Paper No. 09-55. Available at SSRN: http://ssrn.com/abstract=1333291

Contact Information

Daniel B. Schwarcz (Contact Author)
University of Minnesota Law School ( email )
229 19th Avenue South
Minneapolis, MN 55455
United States
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