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The coexistence of multiple distribution systems for financial services: the case of property-liability insurance

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

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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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 95-22.

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Date of creation: 1995
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Handle: RePEc:fip:fedgfe:95-22
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