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Intermediation and matching in insurance markets

Author

Listed:
  • Focht, Uwe
  • Richter, Andreas
  • Schiller, Jörg
Abstract
This paper addresses the role of independent insurance intermediaries in markets where matching is important. A controversial matter in the discussion concerning insurance intermediation is the issue of compensation customs and how the latter affect prices, rents and advice quality in insurance markets. This work compares a fee-based with a commission-based system. We show that in a situation with a non-strategic intermediary both remuneration systems are payoff-equivalent. In a second step, allowing for strategic behavior, we discuss the impact of remuneration on the quality of advice. The analysis shows that the possibility of mismatching can provide the intermediary with substantial market power which however does not translate into mismatching as long as consumers have rational expectations. We offer a rationale for the use of contingent commissions. In addition, this paper addresses whether or not the recent ban of any commission payments as introduced in countries such as Denmark and Finland is an appropriate market intervention.

Suggested Citation

  • Focht, Uwe & Richter, Andreas & Schiller, Jörg, 2009. "Intermediation and matching in insurance markets," FZID Discussion Papers 04-2009, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    • Handle: RePEc:zbw:fziddp:200904
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    References listed on IDEAS

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    10. Hugh Gravelle, 1993. "Product Price and Advice Quality: Implications of the Commission System in Life Assurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 18(1), pages 31-53, June.
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    Cited by:

    1. Pinar Karaca-Mandic & Roger Feldman & Peter Graven, 2013. "The Role of Agents and Brokers in the Market for Health Insurance," Working Papers 13-58, Center for Economic Studies, U.S. Census Bureau.
    2. Banyár, József & Regős, Gábor, 2012. "Paradoxical price effects on insurance markets," Economic Modelling, Elsevier, vol. 29(4), pages 1399-1407.
    3. Annika Pape, 2014. "Miscounselling in the German Insurance Market—Utility-Orientated Implications for the Meaning of Miscounselling," Journal of Consumer Policy, Springer, vol. 37(4), pages 561-582, December.
    4. Dan Constantin Dănuleţiu & Adina Elena Dănuleţiu, 2011. "Trends And Challenges Of Romanian Brokerage Insurance Market," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 1-24.
    5. Annika Pape, 2014. "Liability Rule Failures? Evidence from German Court Decisions," Working Paper Series in Economics 300, University of Lüneburg, Institute of Economics.
    6. Pinar Karaca-Mandic & Roger Feldman & Peter Graven, 2013. "The Role of Agents and Brokers in the Market for Health Insurance," NBER Working Papers 19342, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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