Intermediation and (Mis-)Matching in Insurance Markets—Who Should Pay the Insurance Broker?

Authors

  • Uwe Focht,

    1. Uwe Focht is at Swiss Re. Andreas Richter is at the Munich Risk and Insurance Center (MRIC), Ludwig-Maximilians-Universitaet Munich. Jörg Schiller is at Universitaet Hohenheim (Stuttgart), Chair in Insurance and Social Systems. The authors can be contacted via e-mail: uwe@focht.de, richter@lmu.de, and j.schiller@uni-hohenheim.de, respectively. Financial support by the Deutsche Forschungsgemeinschaft (SCHI 1004/3-1) is gratefully acknowledged by Jörg Schiller. The authors would like to thank Eberhard Feess, Annette Hofmann, Martin Nell, Sabine Wende, and two anonymous referees for valuable comments and suggestions.
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  • Andreas Richter,

    1. Uwe Focht is at Swiss Re. Andreas Richter is at the Munich Risk and Insurance Center (MRIC), Ludwig-Maximilians-Universitaet Munich. Jörg Schiller is at Universitaet Hohenheim (Stuttgart), Chair in Insurance and Social Systems. The authors can be contacted via e-mail: uwe@focht.de, richter@lmu.de, and j.schiller@uni-hohenheim.de, respectively. Financial support by the Deutsche Forschungsgemeinschaft (SCHI 1004/3-1) is gratefully acknowledged by Jörg Schiller. The authors would like to thank Eberhard Feess, Annette Hofmann, Martin Nell, Sabine Wende, and two anonymous referees for valuable comments and suggestions.
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  • Jörg Schiller

    1. Uwe Focht is at Swiss Re. Andreas Richter is at the Munich Risk and Insurance Center (MRIC), Ludwig-Maximilians-Universitaet Munich. Jörg Schiller is at Universitaet Hohenheim (Stuttgart), Chair in Insurance and Social Systems. The authors can be contacted via e-mail: uwe@focht.de, richter@lmu.de, and j.schiller@uni-hohenheim.de, respectively. Financial support by the Deutsche Forschungsgemeinschaft (SCHI 1004/3-1) is gratefully acknowledged by Jörg Schiller. The authors would like to thank Eberhard Feess, Annette Hofmann, Martin Nell, Sabine Wende, and two anonymous referees for valuable comments and suggestions.
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Abstract

This article addresses the role of independent insurance intermediaries in markets where matching is important. We compare fee-based and commission-based compensation systems and show that they are payoff equivalent if the intermediary is completely honest. Allowing for strategic behavior, we discuss the impact of remuneration on the quality of advice. The possibility of mismatching gives the intermediary substantial market power, which will not translate into mismatching if consumers are rational. Furthermore, we offer a rationale for the use of contingent commissions and address whether or not the ban of any commission payments is an appropriate market intervention.

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