AGENT DISCRETION AND THE CHOICE OF INSURANCE MARKETING SYSTEM

This article argues that different insurance marketing organizations a rise as a means to minimize the costs of correctly matching policyhold er risks with insurance coverage. When policyholders are easily sorted without sales agent participation in screening, exclusive dealing wil l be the preferred marketing organization; when agent information is i mportant for risk placement, independent agency may be preferred. Empi rical support for our theory is obtained from analysis of compensation contracts and market shares of the different marketing forms. Exclusi ve dealers are found to be prevalent in relatively standardized, homog eneous product lines and markets, and their agents receive less profit -based compensation than those of independent agency insurers. These f indings are consistent with our theory.