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

32 Pages Posted: 26 Jan 2009 Last revised: 27 Mar 2014

See all articles by Daniel Schwarcz

Daniel Schwarcz

University of Minnesota Law School

Date Written: January 26, 2009


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.

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

Suggested Citation

Schwarcz, Daniel B., 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: https://ssrn.com/abstract=1333291

Daniel B. Schwarcz (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://www.law.umn.edu/profiles/daniel-schwarcz

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