A1068
Title: The impact of intermediaries on insurance demand and pricing
Authors: Yixing Zhao - Guangdong University of Foreign Studies (China) [presenting]
Abstract: The purpose is to study the impact of an independent insurance intermediary, who holds a fiduciary duty to an unsophisticated insurance buyer, on insurance demand and pricing. The intermediary adopts two remuneration systems, namely, a fee-for-advice system and a commission system. Insurance contracting between the buyer (represented by the intermediary) and the insurer is formulated as a Stackelberg insurance game. The analysis yields closed-form expressions for the buyer's equilibrium indemnity and the insurer's equilibrium premium loading. Subsequently, the intricate effects of fiduciary duty and remuneration arrangements are comprehensively explored on equilibrium strategies and stakeholder welfare, unraveling several critical economic implications. It is found that the phenomenon of over-insuring at high premiums, a robust empirical observation, is also attributed to the deterioration of fiduciary duty. Additionally, compared to direct contracting, the presence of the intermediary reduces the equilibrium indemnity but may increase or reduce the equilibrium premium loading. Findings also highlight the absence of a remuneration system that benefits all stakeholders, confirming the coexistence of both systems.
