Intermediation, compensation and tacit collusion in insurance markets

Uwe Focht, Andreas Richter and Joerg Schiller ()

No 17, Working Papers on Risk and Insurance from University of Hamburg, Institute for Risk and Insurance

Abstract: Recent events involving major insurance companies and insurance brokerage firms highlight substantial incentive problems in commercial and reinsurance markets where intermediation takes place. We show that in markets with informed as well as uninformed consumers and heterogeneous risk profiles intermediation has the potential to improve social welfare. However, since intermediation reduces insurers’ market power, incentives for tacit collusion are higher compared to markets without intermediation. A controversial matter in the discussion concerning insurance intermediation is the issue of compensation customs. Our analysis provides explanations for the counterintuitive observation that brokers are usually compensated by insurance companies. The rationale for the latter is the fact that a fee paid by uninformed consumers limits the insurers’ ability to extract rents from informed consumers.

Keywords: insurance; brokerage; collusion; compensation; information (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/54219/1/68053413X.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:hzvwps:17

Access Statistics for this paper

More papers in Working Papers on Risk and Insurance from University of Hamburg, Institute for Risk and Insurance Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().