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

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

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.

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Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 70 (1997)
Issue (Month): 4 (October)
Pages: 515-46

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Handle: RePEc:ucp:jnlbus:v:70:y:1997:i:4:p:515-46
Contact details of provider: Web page: http://www.journals.uchicago.edu/JB/

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