Insurance intermediaries and contractual relations

Rajeev K. Goel

Applied Financial Economics Letters, 2006, vol. 2, issue 4, pages 211-215

Abstract: Insurance intermediaries provide a useful link between insurers and the insured in commercial insurance markets. However, recent revelations of improprieties by some intermediaries have cast a shadow on insurance markets. This has led to calls for reforming the workings of these markets. This study provides a theoretical framework to understand the impact on contractual relationships if some of the proposed changes are implemented. Specifically, it examines the impact of a change in the number of insurance brokers on the preferred type of compensation contracts between insurance providers and intermediaries. Two key questions addressed are: Will the widely prevalent flat fee contracts still be preferred in the face of greater intermediary competition?; and Will there be an increase in the number of projects insured when there is greater competition among insurance intermediaries?

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