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Banks as Insurance Referral Agents? The Convergence of Financial Services: Evidence from the Title Insurance Industry

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  • M. Martin Boyer

    ()

  • Charles M. Nyce

Abstract

The purpose of this paper is to offer a glimpse into the potential industrial organization of the property casualty insurance (P&C) market if banks continue to penetrate it at current rates. To do so, we study an insurance market where banks are already integral in distribution: Title insurance. We draw some broad comparisons between the distribution channels used to sell title insurance and the channel used by banks entering the P&C market. The title insurance industry is characterized by two major entry barriers: Controlled business arrangements and title plants. Although title insurance has not generated much academic interest compared to other insurance products, title insurance is an insurance product wherein the distribution process banks have traditionally been heavily involved. In this paper, we test different industrial organization growth models with barriers to entry. Our empirical analysis suggests that the current title insurance industry structure fits the Salop circular-city model. Our contention is that if banks continue their current trend of market penetration in property casualty markets, the results presented herein could potentially offer an insight into the future structure of the P&C market. Le but de cet article est de donner un aperçu de la structure éventuelle du marché de l'assurance IARD aux États-Unis si les banques continuent de pénétrer le marché de l'assurance IARD au même rythme qu'actuellement. À cette fin, nous étudions un marché de l'assurance où les banques ont déjà un rôle prépondérant, soit l'assurance titre de propriété. Nous comparons les canaux de distribution utilisés pour vendre l'assurance titre et les canaux utilisés par les banques pour entrer dans le marché de l'assurance IARD. Le marché de l'assurance titre est caractérisé par deux importantes barrières à l'entrée: les alliances stratégiques et les banques de transactions immobilières. Dans cet article, nous testons différents modèles de croissance développés en organisation industrielle où il existe des barrières à l'entrée. Nos tests empiriques semblent supporter le modèle de croissance basé sur le modèle circulaire de Salop. Ainsi, nous concluons que si les banques pénètrent de manière significative le marché de l'assurance IARD, nos résultats offrent un aperçu de la structure future de ce marché.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2002s-78.

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Date of creation: 01 Sep 2002
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Handle: RePEc:cir:cirwor:2002s-78

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Keywords: Bank Insurance; Title Insurance; Entry Barriers; Affiliated Agencies; Bancassurance; Assurance titre de propriété; Barrières à l'entrée; Alliances stratégiques;

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