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A Note on the Relative Efficiency of Property-Liability Insurance Distribution Systems

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Author Info

  • J. David Cummins
  • Jack VanDerhei

Abstract

Property-liability insurance is distributed through two major marketing channels -- the independent and the exclusive agency systems. Independent agents place business with several companies, while exclusive agents write insurance for only one company. We find that the independent agency system is less efficient than the exclusive agency system. The efficiency differential did not change significantly during the period 1968 through 1976. When we used the total rather than the underwriting costs to measure expenses, we found that the relative but not the absolute expense differential was reduced. This suggests that the inefficiencies of the independent agency companies stem from marketing and administrative rather than loss adjustment procedures. The findings imply that regulators should play a more active role in the dissemination of information on property-liability insurance prices.

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Bibliographic Info

Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 10 (1979)
Issue (Month): 2 (Autumn)
Pages: 709-719

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Handle: RePEc:rje:bellje:v:10:y:1979:i:autumn:p:709-719

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Web page: http://www.rje.org

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Cited by:
  1. Lucinda Trigo Gamarra, 2007. "Does the Product Quality Hypothesis Hold True? - Service Quality Differences between Independent and Exclusive Insurance Agents," Thuenen-Series of Applied Economic Theory 76, University of Rostock, Institute of Economics, Germany.
  2. Michael R. Powers & Martin Shubik & Shuntian Yao, 1994. "Insurance Market Games: Scale Effects and Public Policy," Cowles Foundation Discussion Papers 1076, Cowles Foundation for Research in Economics, Yale University.
  3. Steven Raphael & Lorien Rice, 2000. "Car Ownership, Employment, and Earnings," JCPR Working Papers 179, Northwestern University/University of Chicago Joint Center for Poverty Research.
  4. Andrew C. Worthington & Emily V. Hurley, 2000. "Technical, allocative and cost efficiency in the Australian general insurance industry," School of Economics and Finance Discussion Papers and Working Papers Series 074, School of Economics and Finance, Queensland University of Technology.
  5. Alma Cohen & Liran Einav, 2005. "Estimating Risk Preferences from Deductible Choice," NBER Working Papers 11461, National Bureau of Economic Research, Inc.
  6. Martina Eckardt & Solvig Räthke-Döppner, 2010. "The Quality of Insurance Intermediary Services-Empirical Evidence for Germany," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(3), pages 667-701.
  7. Felder, Stefan, 1996. "Fire insurance in Germany: A comparison of price-performance between state monopolies and competitive regions," European Economic Review, Elsevier, vol. 40(3-5), pages 1133-1141, April.
  8. Lucinda Trigo Gamarra, 2007. "Single- versus Multi-Channel Distribution Strategies in the German Life Insurance Market: A Cost and Profit Efficiency Analysis," Thuenen-Series of Applied Economic Theory 81, University of Rostock, Institute of Economics, Germany.
  9. Outreville, J. François & Proulx, Carol, 1985. "Fusions et économies de dimension sur le marché des assurances générales au Québec," L'Actualité Economique, Société Canadienne de Science Economique, vol. 61(3), pages 350-361, septembre.

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