Daniel Schwarcz

Abstract

This contribution to a symposium on insurance intermediaries analyzes insurers’ compensation of independent agents and brokers in consumer markets. It focuses on various forms of “differential compensation,” in which an intermediary’s payment varies depending on the insurer with which the consumer ultimately purchases coverage. The article argues that such differential compensation undermines competition among consumer insurers on non-price product attributes, thereby increasing the risk of a “race to the bottom” as insurers concentrate on offering the cheapest coverage that still complies with legal requirements. To address these concerns, the article proposes that insurers relying on independent agents to sell consumer lines of insurance should be prohibited from paying different rates of compensation to different agents for selling the same line of insurance.

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