Business - Finance
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. We 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.
Published in Journal of Business, Volume 70, Issue 4, 1997, pages 515-546.
© 1997 The University of Chicago Press