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

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  • Berger, Allen N
  • Cummins, J David
  • Weiss, Mary A

Abstract

Property-liability insurance is distributed through a direct-writer system, where agents represent one insurer, and an independent-agency system, where agents represent several insurers. Independent-agency insurers have higher costs than direct writers. The market-imperfections hypothesis attributes the coexistence of the two types of insurers to impediments to competition, while the product-quality hypothesis holds that independent-agency insurers provide higher-quality services. The authors measure cost efficiency and profit efficiency for property-liability insurers and find strong support for the product-quality hypothesis, implying that independent-agency insurers produce higher-quality outputs and are compensated by higher revenues. Copyright 1997 by University of Chicago Press.

Suggested Citation

  • Berger, Allen N & Cummins, J David & Weiss, Mary A, 1997. "The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance," The Journal of Business, University of Chicago Press, vol. 70(4), pages 515-546, October.
    • Handle: RePEc:ucp:jnlbus:v:70:y:1997:i:4:p:515-46
    DOI: 10.1086/209730
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