The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance

Posted: 26 May 1998

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Mary A. Weiss

Temple University

Abstract

Property-liability insurance is distributed by independent agents, who represent several insurers, and exclusive agents, who represent only one insurer. The independent agency system is known to have higher costs than the exclusive agency system. The market imperfections hypothesis attributes the coexistence of the two systems to impediments to competition, while the product quality hypothesis holds that independent agents provide higher quality services. We measure both profit efficiency and cost efficiency for a sample of property-liability insurers and find strong support for the product quality hypothesis. The data are consistent with a higher quality of output for independent agency insurers that is rewarded with additional revenues.

JEL Classification: G22, G28, G32, L89

Suggested Citation

Berger, Allen N. and Cummins, J. David and Weiss, Mary A., The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance. FEDS Paper Number: 95-22. Available at SSRN: https://ssrn.com/abstract=6689

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

J. David Cummins

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk.
Philadelphia, PA 19122
United States
215-204-8468 (Phone)
215-204-4712 (Fax)

Mary A. Weiss

Temple University ( email )

Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
United States
215-204-1916 (Phone)

HOME PAGE: http://www.sbm.temple.edu/~rmidept/weiss.html

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