A Search Model of Marketing Systems in Property-Liability Insurance

Abstract:     
Earlier studies (e.g., Joskow, 1973; Cummins and VanDerhei, 1979; and Barrese and Nelson, 1992) have shown that insurers using independent agencies have higher costs than those employing the direct writing system. These studies indicate that competition in insurance markets should have eliminated the independent agency system. This article develops a search theoretical model for an insurance market where insurers and potential policyholders search for each other to form a match. We prove that there exist equilibria where the independent agency and direct writer marketing systems coexist.

JEL Classification: G22

Accepted Paper Series