Independent and Exclusive Agency Insurers: A Reexamination of the Cost Differential

Using 1967 data, Joskow (1973) found the independent agency system relatively inefficient for marketing insurance. Cummins and VanDerhei (1979) extended the study through 1976 and confirmed Joskow's findings. However, they found a smaller cost differential using total expenses rather than under...

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Bibliographic Details
Published in:The Journal of risk and insurance 1992-09, Vol.59 (3), p.375-397
Main Authors: Barrese, James, Nelson, Jack M.
Format: Article
Language:English
Subjects:
Agency theory
Automobile insurance
Costs
Differentials
Distribution channels
Effectiveness
Empirical
Employee insurance
Exclusive agency selling
Finance
Homeowners insurance
Independent insurance agents & brokers
Insurance companies
Insurance expenses
Insurance industry
Insurance premiums
Insurance providers
Liability insurance
Marketing
Statistical analysis
Studies
Variables
Citations: Items that cite this one
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Summary:Using 1967 data, Joskow (1973) found the independent agency system relatively inefficient for marketing insurance. Cummins and VanDerhei (1979) extended the study through 1976 and confirmed Joskow's findings. However, they found a smaller cost differential using total expenses rather than underwriting expenses alone. The current study extends the investigation through 1990, links the empirical evidence with the logic of agency theory, and provides an alternative measurement of marketing methods. The existence of a cost differential is reaffirmed, and the alternate marketing specification shows that exclusive agency firms have lower expenses than independent agency firms but that direct mail merchandisers have lower expenses than either type of agency firm. The estimated cost differentials are insignificant in some years when losses are used as a proxy for output.
ISSN:0022-4367
1539-6975
DOI:10.2307/253052