Skip to main content
SpringerLink
Log in

Insurance Distribution Systems

  • Chapter
Handbook of Insurance

Abstract

This chapter details the use of different insurance distribution systems in practice, analyzes key issues in distribution system use based on economic theories of the organization of the firm, and discusses public policy and regulatory issues related to insurance distribution. The chapter focuses on what we believe to be the three major economic issues in insurance distribution: the choice of distribution system(s) by an insurer; the nature of insurer-agent relationships, including compensation structure and resale price maintenance; and regulatory oversight of insurance distribution activities, including regulation of entry and of information disclosure to consumers.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 149.00
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 199.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Alchian, Armen and Harold Demsetz (1972). “Production, Information Costs and Economic Organization.” American Economic Review 62, 777–795.

    Google Scholar 

  • Anderson, Erin (1985). “The Salesperson as Outside Agent or Employee: A Transaction Cost Analysis.” Marketing Science 4, 234–254.

    Article  Google Scholar 

  • Anderson, E., W.T. Ross, Jr. and Barton Weitz (1998). “Commitment and its Consequences in the American Agency System of Selling Insurance.” Journal of Risk and Insurance 65, 637–669.

    Article  Google Scholar 

  • Andre, John E. and Rich Sodowsky (1997). “Considering the Alternative Markets” Best’s Review P/C May, 42–46.

    Google Scholar 

  • Barrese, James, Helen I. Doerpinghaus and Jack M. Nelson (1995). “Do Independent Agent Insurers Provide Superior Service? The Insurance Marketing Puzzle.” Journal of Risk and Insurance 62, 297–308.

    Article  Google Scholar 

  • Barrese, James and Jack M. Nelson (1992). “Independent and Exclusive Agency Insurers: A Reexamination of the Cost Differential.” Journal of Risk and Insurance 59, 375–397.

    Article  Google Scholar 

  • Basu, A.K., Rajiv Lal, V. Srinivasan and Richard Staelin (1986). “Sales Compensation Plans: An Agency Theoretic Perspective.” Marketing Science 4, 267–291.

    Article  Google Scholar 

  • Berger, Allen N., J. David Cummins and Mary A. Weiss (1997). “The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance” Journal of Business 70, 515–546.

    Article  Google Scholar 

  • Berger, Lawrence, Paul Kleindorfer and Howard Kunreuther (1989). “A Dynamic Model of the Transmission of Price Information in Auto Insurance Markets.” Journal of Risk and Insurance 56, 17–33.

    Article  Google Scholar 

  • Bernheim, Douglas and Michael Whinston (1985). “Common Marketing Agency as a Device for Facilitating Collusion.” Rand Journal of Economics 16, 269–281.

    Article  Google Scholar 

  • Braeutigam, Ronald and Mark V. Pauly (1986). “Cost Function Estimation and Quality Bias: The Regulated Automobile Insurance Industry.” Rand Journal of Economics 17, 606–617.

    Article  Google Scholar 

  • Carr, Roderick A. (1997). “Strategic Choices, Firm Efficiency, and Competiveness in the U.S. Life Insurance Industry.” Ph.D. Dissertation, The Wharton School, University of Pennsylvania, Phila. PA.

    Google Scholar 

  • Carr, Roderick A., J. David Commins and Laureen Regan (1999). “Efficiency and Competitiveness in the U.S. Life Insurance Industry: Corporate, Product, and Distribution Strategies” in J.D. Cummins and A. Santomero eds., Changes in the Life Insurance Industry: Efficiency, Technology, and Risk Management, Kluwer Academic Publishers.

    Google Scholar 

  • Cather, David, Sandra Gustayson and James Trieschmann (1985). “Profitability Analysis of Property-Liability Insurers Using Alternative Distribution Systems” Journal of Risk and Insurance 52, 321–332.

    Article  Google Scholar 

  • Caves, Richard E. (1986). “Vertical Restraints in Manufacturer-Distributor Relations: Incidence and Economic Effects” In R.E. Grieson, ed., Antitrust and Regulation. Lexington: Lexington Books.

    Google Scholar 

  • Crosby, Lawrence A., Kenneth R. Evans and Richard S. Jacobs (1991). “Effects of Life Insurance Price Rebating on Simulated Sales Encounters” Journal of Risk and Insurance 58, 583–615.

    Article  Google Scholar 

  • Cummins, J. David and Jack VanDerhei (1979). “A Note on the Relative Efficiency of Property-Liability Insurance Distribution Systems.” Bell Journal of Economics 10, 709–719.

    Article  Google Scholar 

  • Cummins, J. David and Stephen Weisbart (1977). The Impact of Consumer Services on Independent Insurance Agency Performance. Glenmont, New York: IMA Education and Research Foundation.

    Google Scholar 

  • Dahlby, Bev and Douglas West (1986). “Price Search in an Automobile Insurance Market.” Journal of Political Economy 94, 418–438.

    Article  Google Scholar 

  • Darby, Michael and Edi Karni (1979). “Free Competition and the Optimal Amount of Fraud” Journal of Law and Economics 22, 67–88.

    Google Scholar 

  • Doerpinghaus, Helen I. (1991). “An Analysis of Complaint Data in the Automobile Insurance Industry.” Jcurnal of Risk and Insurance 58, 122, 120–127.

    Article  Google Scholar 

  • Eastman, Kevin L, Jacqueline K. Eastman and Alan D. Eastman (1996). “The Ethics of Insurance Professionals: Comparison of Personal versus Professional Ethics.” Journal of Business Ethics 15, 951–962.

    Article  Google Scholar 

  • Etgar, Michael (1976). “Service Performance of Insurance Distribution.” Journal of Risk and Insurance 43, 487–499.

    Article  Google Scholar 

  • Fama, Eugene (1980). “Agency Problems and the Theory of the Firm.” Journal of Political Economy 88, 288–307.

    Article  Google Scholar 

  • Fields, Joseph A. and Neil Murphy (1989). “An Analysis of Efficiency in the Delivery of Financial Services: The Case of Life Insurance Agencies.” Journal of Financial Services Research 2, 323–356.

    Article  Google Scholar 

  • Finsinger, Jorg and Mark V. Pauly, eds. (1986). The Economics of Insurance Regulation: A Cross-National Study. New York: St. Martin’s Press.

    Google Scholar 

  • Finsinger, Jorg and F.A. Schmid (1992). “Prices, Distribution Channels and Regulatory Intervention in European Insurance Markets.” Working paper. University of Vienna.

    Google Scholar 

  • Gaunt, Larry D., Neuman A. Williams and Everett D. Randall (1990a). Commercial Liability Underwriting, Volume II. Malvern: Insurance Institute of America.

    Google Scholar 

  • Grabowski, Henry, W. Kip Viscusi and William N. Evans (1989). “The Effects of Regulation on the Price and Availability of Automobile Insurance.” Journal of Risk and Insurance 56, 275–299.

    Article  Google Scholar 

  • Gravelle, Hugh (1994). “Remunerating Information Providers: Commissions versus Fees in Life Insurance.” Journal of Risk and Insurance 61, 425–457.

    Article  Google Scholar 

  • Gravelle, Hugh (1993). “Product Price and Advice Quality: Implications of the Commission System in Life Assurance” Geneva Papers on Risk and Insurance Theory 16, 3–19.

    Google Scholar 

  • Gron, Anne (1995). “Regulation and Insurer Competition: Did Insurers Use Rate Regulation to Reduce Competition?” Journal of Risk and Uncertainty 11, 87–111.

    Article  Google Scholar 

  • Grossman, Sanford and Oliver Hart (1986). “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.” Journal of Political Economy 94, 691–719.

    Article  Google Scholar 

  • Harrington, Scott E. (1982). “Operating Expenses for Agency and Nonagency Life Insurers: Further Evidence.” Journal of Risk and Insurance 49, 229–255.

    Article  Google Scholar 

  • Hoesly, Michelle L. (1996). “Life Insurance Distribution: The Future is Not What it Used to Be”, Journal of the American Society of CLU and ChFC 50, 88–100.

    Google Scholar 

  • Holmstrom, Bengt R. and Jean Tirole (1990). “The Theory of the Firm.” in R. Schmalensee and R. Willig, eds., Handbook of Industrial Organization. Amsterdam: Elsevier Science Publishers.

    Google Scholar 

  • Hoschka, Tobias C. (1994). Bancassurance in Europe. New York: St. Martin’s Press.

    Google Scholar 

  • Howe, Vince, Douglas K. Hoffman and Donald W. Hardigree (1994). “The Relationship between Ethical and Customer-oriented Service Provider Behaviors.” Journal of Business Ethics 13, 497–506.

    Article  Google Scholar 

  • Ippolito, Pauline M. and Thomas R. Overstreet Jr. (1996). “Resale Price Maintenance: An Economic Assessment of the Federal Trade Commission’s Case against the Corning Glass Works” Journal of Law and Economics 39, 285–328.

    Article  Google Scholar 

  • Ippolito, Pauline M. (1988). “The Economics of Information in Consumer Markets: What do we Know? What do we need to Know?” In E.S. Maynes, ed., The Frontier of Research in the Consumer Interest. Columbia: American Council on Consumer Interests.

    Google Scholar 

  • Jensen, Michael C. and William H. Meckling (1976). “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” Journal of Financial Economics 3, 305–360.

    Article  Google Scholar 

  • John, George and Barton Weitz (1989). “Salesforce Compensation: An Empirical Investigation of Factors Related to the Use of Salary Versus Incentive Compensation.” Journal of Marketing Research 26, 1–14.

    Article  Google Scholar 

  • Joskow, Paul (1973). “Cartels, Competition and Regulation in the Property-Liability Insurance Industry.” Bell Journal of Economics and Management Science 4, 375–427.

    Article  Google Scholar 

  • Katz, Michael L. (1990). “Vertical Contractual Relations.” In R. Schmalensee and R. Willig, eds., Handbook of Industrial Organization. Amsterdam: Elsevier Science Publishers.

    Google Scholar 

  • Kim, Won-Joong, David Mayers and Clifford Smith (1996). “On the Choice of Insurance Distribution Systems” Journal of Risk and Insurance 63, 207–227.

    Article  Google Scholar 

  • Kurland, Nancy B. (1996). “Sales Agents and Clients: Ethics, Incentives and a Modified Theory of Planned Behavior.” Human Relations 49, 51–74.

    Article  Google Scholar 

  • Kurland, Nancy B. (1995). “Ethics, Incentives and Conflicts of Interest: A Practical Solution.” Journal of Business Ethics 14, 465–475.

    Article  Google Scholar 

  • Lefenfeld, Mark S. (1996). “Fee based Compensation Replaces Shrinking Income” Bests Review 96, 68. Lewis, Tracy and David Sappington (1989). “Inflexible Rules in Incentive Problems.” American Economic Review 79, 69–84.

    Google Scholar 

  • Martimort, David (1996). “Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory.” Rand Journal of Economics 27, 1–31.

    Article  Google Scholar 

  • Marvel, Howard (1982). “Exclusive Dealing.” Journal of Law and Economics 25, 1–25.

    Article  Google Scholar 

  • Mathewson, Frank (1983). “Information, Search and Price Variability of Individual Life Insurance Contracts.” Journal of Industrial Economics 32, 131–148.

    Article  Google Scholar 

  • Morgan, Glenn et al (1994). “Bancassurance in Britain and France: Innovating Strategies in the Financial Services.” The Geneva Papers on Risk and Insurance 19, 178–195.

    Google Scholar 

  • Nuttney, Andrew (1995). The Marketing and Distribution of European Insurance. Financial Times Management Reports. London: Pearson Professional Ltd.

    Google Scholar 

  • Pauly, Mark, Paul Kleindorfer and Howard Kunreuther (1986). “Regulation and Quality Competition in the U.S. Insurance Market.” In Finsinger, Jorg and Mark Pauly, eds., The Economics of Insurance Regulation. New York: St. Martin’s Press 65–107.

    Google Scholar 

  • Posey, Lisa L. and Sharon Tennyson (1998). “The Coexistence of Distribution Systems under Price Search: Theory and some Evidence from Insurance” Journal of Economic Behavior and Organization 35, 95–115.

    Article  Google Scholar 

  • Posey, Lisa L. and Abdullah Yavas (1995). “A Search Model of Marketing Systems in Property-Liability Insurance.” Journal of Risk and Insurance 62, 666–689.

    Article  Google Scholar 

  • Pritchett, S. Travis and Benjamin Y. Brewster, Jr. (1979). “Comparison of Ordinary Operating Expense Ratios for Agency and Non-Agency Insurers” Journal of Risk and Insurance 46, 61–74.

    Google Scholar 

  • Puelz, Robert and Arthur Snow (1991). “Efficient Contracting in a Market for Life Insurance Agents with Asymmetric Information.” Journal of Risk and Insurance 58, 729–736.

    Article  Google Scholar 

  • Regan, Laureen (1999). “Expense Ratios Across Insurance Distribution Systems: An Analysis by Line of Business.” Risk Management and Insurance Review 2.

    Google Scholar 

  • Regan, Laureen (1997). “Vertical Integration in the Property-Liability Insurance Industry: A Transactions Cost Approach”. Journal of Risk and Insurance 64, 41–62.

    Article  Google Scholar 

  • Regan, Laureen (1993). “Vertical Integration in the Property-Liability Industry”, Ph.D. Dissertation, The Wharton School, University of Pennsylvania, Phila.PA.

    Google Scholar 

  • Regan, Laureen and Sharon Tennyson (1996). “Agent Discretion and the Choice of Insurance Distribution System.” Journal of Law and Economics 39, 637–666.

    Article  Google Scholar 

  • Regan, Laureen and Larry Tzeng (1999). “Vertical Integration and Ownership Form in the Property-Liability Insurance Industry.” Journal of Risk and Insurance 66, 253–274.

    Article  Google Scholar 

  • Rejda, George E. (1998). Principles of Risk Management and Insurance. 6th edition. Reading: Addison-Wesley Educational Publishers Inc.

    Google Scholar 

  • Russell, David T. (1997). An Empirical Analysis of Life Insurance Policyholder Surrender Activity. Unpublished Ph.D. dissertation, University of Pennsylvania.

    Google Scholar 

  • Santomero, Anthony M. (1993). “Banking and Insurance: A Banking Industry Perspective.” In J.D. Cummins and J. Lamm-Tennant, eds., Financial Management of Life Insurance Companies. Norwell: Kluwer Academic Publishers.

    Google Scholar 

  • Sass, Tim and Misha Gisser (1989). “Agency Costs, Firm Size and Exclusive Dealing.” Journal of Law and Economics 32, 381–400.

    Article  Google Scholar 

  • Schlesinger, Harris and Mathias von-der Schulenburg (1991). “Search costs, Switching costs and Product Heterogeneity in an Insurance Marker’ Journal of Risk and Insurance 58, 109–120.

    Article  Google Scholar 

  • Seog, Sun Hung (1999). “The Coexistence of Distribution Systems when Consumers are not Informed.” The Geneva Papers on Risk and Insurance Theory, forthcoming.

    Google Scholar 

  • Skipper, Harold D., ed. (1998). International Risk and Insurance: An Environmental-Managerial Approach. Boston: Irwin-McGraw-Hill Publishers.

    Google Scholar 

  • Stalson, Owen J. (1949). Marketing Life Insurance: Its History in America. Cambridge: Harvard University Press.

    Google Scholar 

  • Suponcic, Susan J. and Sharon Tennyson (1998). “Rate Regulation and the Industrial Organization of Automobile Insurance” In D. Bradford, ed., The Economics of Property-Casualty Insurance. University of Chicago Press.

    Google Scholar 

  • Telser, Lester (1960). “Why Should Manufacturers Want Fair Trade?” Journal of Law and Economics 3, 86–105.

    Article  Google Scholar 

  • Tennyson, Sharon (1997). “The Impact of Rate Regulation on State Automobile Insurance Markets.” Journal of Insurance Regulation 15, 502–523.

    Google Scholar 

  • Venezia, Itzhak, Dan Galai and Zur Shapira (1996). “Exclusive Vs. Independent Agents: A Separating Equilibrium Approach” Working paper #9–96, Anderson School of Management, UCLA.

    Google Scholar 

  • Webb, Bernard, J.J. Launie, W.P. Rokes and N.A. Baglini (1984). Insurance Company Operations. (Volume 1). Malvern: American Institute for Property and Liability Underwriters.

    Google Scholar 

  • Weiss, Mary A. (1986). “Analysis of Productivity at the Firm Level: An Application to Life Insurers” Journal of Risk and Insurance 53, 49–84.

    Article  Google Scholar 

  • Williamson, Oliver E. (1990). “Transaction Cost Economics.” In R. Schmalensee and R. Willig, eds., Handbook of Industrial Organization. Amsterdam: Elsevier Science Publishers.

    Google Scholar 

  • Williamson, Oliver E. (1979). “Transaction-Cost Economics: The Governance of Contractual Relations.” The Journal of Law and Economics 22, 233–261.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Temple University, USA

    Laureen Regan

  2. Cornell University, USA

    Sharon Tennyson

Authors
  1. Laureen Regan
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Sharon Tennyson
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. HEC-Montréal, Canada

    Georges Dionne (Risk Management Chair) (Risk Management Chair)

Rights and permissions

Reprints and permissions

Copyright information

© 2000 Springer Science+Business Media New York

About this chapter

Cite this chapter

Regan, L., Tennyson, S. (2000). Insurance Distribution Systems. In: Dionne, G. (eds) Handbook of Insurance. Huebner International Series on Risk, Insurance, and Economic Security, vol 22. Springer, Dordrecht. https://doi.org/10.1007/978-94-010-0642-2_22

Download citation

  • DOI: https://doi.org/10.1007/978-94-010-0642-2_22

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-0-7923-7911-9

  • Online ISBN: 978-94-010-0642-2

  • eBook Packages: Springer Book Archive

Publish with us

Policies and ethics

Search

Navigation