COMPENSATION AND INDUSTRY PROFITABILITY - EVIDENCE FROM THE PROPERTY-CASUALTY INSURANCE INDUSTRY

This article provides an empirical-investigation of a multiple princip al-multiple agent relationship under changing industry conditions. Usi ng 34 years of biannual data, it investigates the relationship between property-casualty insurers and agents representing multiple insurers. Several facts emerge. Average commission rates and the number of insu rers represented are lower when insurers have higher profitability. Ag ency income is not systematically related to insurer profitability. Co mpetition from alternative distribution systems and technological inno vation have reduced commission rates. Larger agencies have lower avera ge commission rates. These facts are interpreted in light of industry history and economic theory and suggest areas for further research.