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Insurer Performance and Intermediary Remuneration: The Impact of Abandonment of Contingent Commissions

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  • Yu-Luen Ma

    (Katie School of Insurance and Financial Services, Illinois State University, Campus Box 5490, Normal, IL 61790-5490, U.S.A.)

  • Nat Pope

    (Katie School of Insurance and Financial Services, Illinois State University, Campus Box 5490, Normal, IL 61790-5490, U.S.A.)

  • Xiaoying Xie

    (Department of Finance, California State University, 800 N. State College Blvd., Fullerton, CA 92831-3599, U.S.A.)

Abstract

The advent of the 2004 Spitzer investigation subjected the use of contingent commissions to significant scrutiny in the public media. This research uses the Spitzer investigation as a point of differentiation and assesses the relationship shared by the abandonment of contingent commissions and insurer performance across the pre- and post-2004 periods. Our research defines insurer performance using efficiency measures derived through data envelopment analysis. We employ a difference-in-difference methodology to control for extraneous environmental factors across the time period under consideration, 1993–2008. Our results suggest that the decision to abandon the use of contingent commissions after 2004 is associated with decreases in insurer performance. We attribute that reduction in performance to insurers’ abandonment of otherwise performance-maximising remuneration strategies in an attempt to distance themselves from any potential negative associations with the use of contingent commissions.

Suggested Citation

  • Yu-Luen Ma & Nat Pope & Xiaoying Xie, 2014. "Insurer Performance and Intermediary Remuneration: The Impact of Abandonment of Contingent Commissions," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(2), pages 373-388, April.
    • Handle: RePEc:pal:gpprii:v:39:y:2014:i:2:p:373-388
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    Cited by:

    1. Kaffash, Sepideh & Azizi, Roza & Huang, Ying & Zhu, Joe, 2020. "A survey of data envelopment analysis applications in the insurance industry 1993–2018," European Journal of Operational Research, Elsevier, vol. 284(3), pages 801-813.

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