Insurer Performance and Intermediary Remuneration: The Impact of Abandonment of Contingent Commissions

Yu-Luen Ma, Nat Pope and Xiaoying Xie
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Yu-Luen Ma: Katie School of Insurance and Financial Services, Illinois State University, Campus Box 5490, Normal, IL 61790-5490, U.S.A.
Nat Pope: Katie School of Insurance and Financial Services, Illinois State University, Campus Box 5490, Normal, IL 61790-5490, U.S.A.
Xiaoying Xie: Department of Finance, California State University, 800 N. State College Blvd., Fullerton, CA 92831-3599, U.S.A.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2014, vol. 39, issue 2, 373-388

Abstract: The advent of the 2004 Spitzer investigation subjected the use of contingent commissions to significant scrutiny in the public media. This research uses the Spitzer investigation as a point of differentiation and assesses the relationship shared by the abandonment of contingent commissions and insurer performance across the pre- and post-2004 periods. Our research defines insurer performance using efficiency measures derived through data envelopment analysis. We employ a difference-in-difference methodology to control for extraneous environmental factors across the time period under consideration, 1993–2008. Our results suggest that the decision to abandon the use of contingent commissions after 2004 is associated with decreases in insurer performance. We attribute that reduction in performance to insurers’ abandonment of otherwise performance-maximising remuneration strategies in an attempt to distance themselves from any potential negative associations with the use of contingent commissions.

Date: 2014
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