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Title:The impact of intermediary remuneration in differentiated insurance markets PDF Logo
Authors:Hofmann, Annette
Nell, Martin
Issue Date:2008
Series/Report no.:Working Papers on Risk and Insurance 22
Abstract:This article deals with the impact of intermediaries on insurance market transparency and performance. In a market exhibiting product differentiation and coexistence of perfectly and imperfectly informed consumers, competition among insurers leads to non-existence of a pure-strategy market equilibrium. Consumers may become informed about product suitability by consulting an intermediary. We explicitly model two intermediary remuneration systems: commissions and fees. We find that social welfare under fees is first-best efficient but fees lead to lower expected profits of insurers and non-existence of a pure-strategy market equilibrium. Commissions, in contrast, cause 'overinformation' of consumers relative to minimal social cost, but yield a full-information equilibrium in pure strategies associated with higher expected profits of insurers. This might explain why intermediaries are generally compensated by insurers.
Subjects:product differentiation
intermediation
insurance oligopoly
JEL:D43
G22
L13
Document Type:Working Paper
Appears in Collections:Working Papers on Risk and Insurance, Institut für Versicherungsbetriebslehre, Universität Hamburg

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