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Paradoxical price effects on insurance markets

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  • Banyár, József
  • Regős, Gábor

Abstract

In this paper we analyze a paradox phenomenon in certain insurance markets of some countries: in spite of there being strong competition, increasing prices can be found in some submarkets. As a reason for this, we need to note the special distribution of insurance products, a distribution primarily based on intermediaries — and, as a result, there is an increasing part for ‘intermediation’ costs within insurance products' cost structure due to competition for the intermediaries. We build an oligopolistic model assuming that the market is saturated, which is able to explain the overemployment of intermediaries and the high commissions involved. We analyze possible interventions and laws/regulations and suggest that the problem can be solved only with major regulation. Finally, we have come up with an empirical analysis to test the model.

Suggested Citation

  • Banyár, József & Regős, Gábor, 2012. "Paradoxical price effects on insurance markets," Economic Modelling, Elsevier, vol. 29(4), pages 1399-1407.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:4:p:1399-1407
    DOI: 10.1016/j.econmod.2012.02.018
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    References listed on IDEAS

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    1. Levine, Ross, 1992. "Financial intermediary services and growth," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 383-405, December.
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    More about this item

    Keywords

    Insurance intermediaries market; Price increasing competition; Oligopolistic model; Insurance intermediary regulation;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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