THE COEXISTENCE OF MULTIPLE DISTRIBUTION-SYSTEMS FOR FINANCIAL SERVICES - THE CASE OF PROPERTY-LIABILITY INSURANCE

Property-liability insurance is distributed through a direct-writer sy stem, where agents represent one insurer, and an Independent-agency sy stem, where agents represent several insurers. Independent-agency insu rers have higher costs than direct writers. The market-imperfections h ypothesis attributes the coexistence of the two types of insurers to i mpediments to competition, while the product-quality hypothesis holds that independent-agency insurers provide higher-quality services. We m easure cost efficiency and profit efficiency for property liability in surers and find strong support for the product-quality hypothesis, imp lying that independent-agency insurers produce higher-quality outputs and are compensated by higher revenues.