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The Quality of Insurance Intermediary Services— Empirical Evidence for Germany

Author(s): Martina Eckardt and Solvig Räthke-Döppner
Source: The Journal of Risk and Insurance, Vol. 77, No. 3 (September 2010), pp. 667-701
Published by: American Risk and Insurance Association
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© TheJournalofRiskand Insurance,2010,Vol. 77, No. 3, 667-701
DOI:10.1111/j.l539-6975.2010.01361.x
The Quality of Insurance Intermediary

Services- EmpiricalEvidence for Germany
MartinaEckardt
SolvigRäthke-Döppner
Abstract
Competinginsuranceintermediaries provideheterogeneous servicesthat
aredifficult
forincompletelyinformed consumers toassess.Transactioncost
economics, searchtheory,andprincipal-agenttheory providearguments on
productqualitydifferences betweenexclusiveagentsand independent in-
termediaries.Thisarticleuses a sampleof927 insuranceintermediaries in
Germany. OLS
Byperforming estimations, we testtheimpact ofthedifferent
distributionchannelsand otherfactorson intermediaries' servicequality.
Dependingon theproxiesused forservicequality, we findmixedevidence
fortheproductqualityhypothesis. Servicequalitydependsto a largeex-
tenton theinformation-gathering andprocessingactivities
oftheindividual
intermediaries,independent ofthe distribution
respective channel.
Introduction
The profoundinformation asymmetriesbetweenconsumersand insurancecompa-
nieshave resultedin theevolutionofinstitutions
thatmediatebetweenconsumers
and insurancecompanies.Insuranceintermediariessuchas exclusiveagentsand in-
surancebrokers holdan important as
position matchmakers betweenthesupplyand
demandsides on insurancemarkets.On one hand,theyprovidedistribution and
marketingservicesforinsurancecompanies, buton theotherhandtheyalso supply
informationaland advisoryservicesforconsumers. Insuranceintermediariesassist
in concludinginsurancecontractsby providinglow-costinformation to consumers
regardingtheirriskprofiles,
insuranceneeds,and suitableinsuranceproducts,thus
reducingcomplexity forconsumers and transaction
costsforinsurancecompanies.
However,whileinsuranceintermediaries contributeto enhancingtransparency in
insurancemarkets, theinsuranceintermediarymarketitselfis characterizedby in-
formationgapssinceconsumers actunderasymmetric information
aboutthequality
oftheinformation and advisoryservicesprovidedby theintermediaries. Theseser-
vicesareexperience and credencegoods;a consumercannotfullyassesstheservice
MartinaEckardt
isatAndrássy
University
Budapest. isatRostock
SolvigRäthke-Döppner Uni-
Eckardt
versity canbecontacted
viae-mail: Wearethankful
martina.eckardt@andrassyuni.hu.
toDorisNeuberger,
KaiRiewe,
andtwoanonymousreferees
fortheir comments.
helpful
667
668 The Journal of Riskand Insurance
qualityprovidedby competinginsuranceintermediaries untilwell aftertheinfor-

mationand advicehave been "consumed."1In some cases,such an assessmentis
barelypossibleat anytime.Especiallyforlong-term insuranceproductssuchas old-
age or disabilityinsurance, the quality of the information and advicegivencan be
evaluatedonlyaftertheinsuredriskhas actuallyoccurred, an eventthatoftentakes
place decades later.Common business practices that have evolved overtimeadd to
thelack of transparency, especially in terms of remuneration practicesand disclo-
suresaboutbusinessrelationships betweenintermediaries and insurance companies;
consequently, consumershave onlyrestricted information aboutpotentialconflicts
ofinterest and potential bias in theinformation and advicegivenbyinsuranceinter-
mediaries.Thisis notjusta theoretical possibility. In theUnitedKingdom,insurance
intermediaries used theseasymmetries toprovidemisleadingand incomplete infor-
mationto thedetriment ofconsumersin the1990s(Davis,2004).In 1997,theBritish
government beganpayingbillionsofBritish poundsto compensatemillionsofem-
ployees who had opted out of occupationalpensionschemesbecauseofbad advice
givenby financialintermediaries.
In thisarticle,we trytoshedlighton thequestionoftheservicequalityprovidedby
insurance intermediaries.Ourresearch is basedon a sampleof927Germanexclusive
agents,independent agents,and insurancebrokerswho answereda surveyin 2001.
In theGermanmarketforpersonalinsuranceexclusiveagentsheldabout80 percent
market sharein1985,by2005theyhad experienced a precipitous declineto27percent
(TowersPerrin,2007).By contrast, insurancebrokers,who accountedforonly14
percentofinsurancesalesin 1985,increasedtheirsharetonearly33 percentin 2005.
Banks,whichhad a negligibleshare20 yearsago, raisedit to nearly25 percentin
2005.As independent agents,insurancebrokers, and bankscontinueto gainmarket
sharefromexclusiveagents,it is clearthatinsurancecompanieshave followeda
multichannel distribution strategy (TrigoGamarra,2007a).
Our empiricalfindingsalso touchon thestillcontroversial issue in theinsurance
literature about whether exclusive agents and independent intermediaries provide
thesameservicequality. According tothemarket failure hypothesis, theircoexistence
is a consequenceofincomplete and asymmetric information in theinsuranceinter-
mediarymarket, which allows the relatively more costlyindependent intermediaries
to survive.The productqualityhypothesis states that independent intermediaries
providebetterproductquality than exclusive agents, so a separating equilibrium is
realizedbetweenlessexpensive, lower-quality exclusive agents and more expensive,
higher-quality independent agents.
Weadd totheliterature ontheservicequalityprovidedbydifferent chan-
distribution
nelsina numberofways.Mostempirical studieshaveexaminedtheproperty-liability
insurance businessintheUnitedStates;ourdatafocusontheGermanmarket forper-
sonal lines,whereold-ageprovisionsare of greatimportance. We use data from
a surveyamonginsuranceintermediaries to accountfordifferences in theservice
qualityprovided, while most of the extant empirical literaturehas focused on insur-
ance companiesthatuse different distribution channels,noton theintermediaries
1The mayreducethisinfor-
bywordofmouth
communicated
ofanintermediary
reputation
mation
asymmetry.
Services 669
Qualityof InsuranceIntermediary
themselves. Furthermore, we provideinsightson otherfactorsthatexplainquality

differencesamong intermediaries channel.
thatare unrelatedto theirdistribution
we
Finally, use a differentapproachto measure the qualityprovidedby in-
service
termediaries. as follows.In thenextsection,we discussin
The articleis structured
moredetailtherelevanttheoretical and deriveour main
and empiricalliterature
hypotheses. In thesection"Data and EstimationMethods" we describetheGerman
market forinsurance ourdata,and theestimation
intermediation, methodsused.The
estimationresultsarepresented and discussedinthesection"EstimationResultsand
Discussion."Thelastsectionsummarizes and concludes.
LiteratureReviewand Hypotheses
TheoreticalInsightson InsuranceIntermediaries'
Service Quality
Insurancemarketsarecharacterized byincomplete and asymmetric information be-
tweeninsurancecompaniesand consumers(Cumminsand Doherty, 2006;Eckardt,
2007).Becauseinsurancecoverageis complex,consumersneed information about
theirrisks,insuranceproducts,and contract designs,as well as aboutclaimssettle-
mentand theinvestment behaviorand financialstability of insurancecompanies.
Becauseof thelong-term natureof mostpersonalinsurance,information mustbe
gathered, processed,and assessedrepeatedly as are
policies renewed, which requires
special skillsand in
expertknowledge many differentareas,including insurance
mathematics and contractlaw.Moreover, inthecourseofthelargertransaction, other
activities
beyond theinformation search must be carried out,most important among
themthebargainingand administrative activitiesthatarisewhenthetermsofthe
insurancecontract are (re-)negotiatedand/ora loss settlement takesplace.Likein-
formation acquisitionand assessment, theseactivitiesalso requirespecialknowledge
and skills.On theotherside,insurancecompaniesrequireinformation aboutcon-
sumers'characteristicsand behaviorin ordertoprovideadequateriskcoverageat a
fairprice.Theseactivitiescanbe performed eitherbytheinsurancecompanyorwith
thehelpofintermediaries who specializein providingsuchinformation, alongwith
bargaining and administrativeservices.Generally, consumers and insurance compa-
nieswillturntointermediaries whenevertheintermediated exchangecreatesgreater
netgainsthandirectexchange(Benstonand Smith,1976;Spulber,1999,pp. 256-286).
Intermediaries can realizetheirown highernetgainsby reducingtheirtransaction
costs.
Transaction cost theoryand searchtheoryshow how intermediaries help reduce
information and searchcostsand provideadditionalservicesso thattotaltransac-
tioncostsdecline(Benstonand Smith,1976;Rose, 1999,pp. 58-66;Spulber,1999,
pp. 262-266).Coordination costsarelowerinintermediated exchangesthanin direct
exchangesbecausethenumberofcontactsbetweenpotentialtradingpartners is re-
duced.Thereare also positivenetworkexternalities whentheintermediary actsas
a communication center(Baligh-Richartz Rose,1999,p. 60). Transaction
effect; cost
reductions resultfromhigherproductivity as a consequenceof specializationand
divisionoflabor,learningeffectsovertime,and economiesofscaleand scope.While
a singleconsumeruses investment in humancapital,searchtechnologies, or exper-
tiseto increasetheproductivityoftransactionalactivities
onlyforthetransaction at
hand,an intermediary can repeatedlyuse thesame information, therebyobtaining
economiesofscaleand scope.
Searchtheoryidentifies a numberoffactors thataffect theservicequalityprovided

byinsurance intermediaries (PoseyandYavas,1995;PoseyandTennyson, 1998;Seog,
1999,2005;Eckardt, 2007).On thedemandside,consumers'preferences in regardto
insurance-related information, othertransaction services,and theirtransaction costs
influence theirmake-or-buy decisions.Sincemanyinformation servicesdependon
information thatis privately heldby consumers, intermediation servicequalityalso
on
depends cooperation between consumers and intermediaries. On thesupplyside,
thedistribution oftherelevantinformation and thesearchtechnology used areim-
portant factors that affect the search coststhatare incurred in producinginformation
and otherservicesat a certainlevelofquality(Rose,1999;Eckardt, 2007).The most
important inputs are the time spentsearching, and
processing, evaluatinginforma-
tionand theinvestment in specificinsurance-related humancapital(knowledgeand
skills).
Insurance intermediary markets arealsocharacterized byincomplete andasymmetric
information. Information and counselingservicesareexperience and credencegoods
(Nelson,1970;DarbyandKami,1973;Hirshleifer, 1973).According toprincipal-agent
theory, thisinformation asymmetry leads to low qualitybecause of the differing
objectivesbetweenprincipals(consumers)and agents(insuranceintermediaries).
As a consequence,adverseselectionand/ormoralhazardmayoccur.Accordingly,
no separatingequilibrium is to be expected,leadingto overalllow servicequality
(Gravelle,1993;Kurland,1995,1996;Horsch,2004).
Insuranceintermediaries differin termsof theirlegal status.Exclusiveinsurance
agentsrepresent exclusively theproductsof a singleinsurancecompany, whereas
according to German law or
joint independent insurance agents sell thepoliciesof
severalinsurancecompanies,but onlyone insurancecompanyforeach insurance
line.Insurancebrokers,on the otherhand,are independentfrominsurancecom-
panies.In the UnitedStates,independentagentsand insurancebrokersown the
clientlistand determine whichinsurancecompanywillwin therenewal,while,in
case ofexclusiveagents,theinsurancecompany"owns" theclientand decideson
thecontractrenewal.In Germany, unliketheUnitedStates,insurancecompanies
own theclientlistin anycase,evenwheninsuranceis distributed by independent
agentsand insurance brokers(Zinnertand Griess,1997).In theUnitedStates,likein
Germany, independent intermediaries arelegallyrequiredtoprovidetheircustomers
morecomprehensive information thanexclusiveagentsdo to avoid legalsanctions.
Despitethesedifferences, thevarioustypesofintermediaries competeforthesame
consumers, particularly if the intermediaries distribute personallines(Cumminsand
Doherty, 2006).
An extensivebody of literature has analyzedthecoexistenceof exclusiveand in-
dependent intermediaries from an agencyor a transaction-cost perspective (Berger,
Cummins,and Weiss,1997;Reganand Tennyson, 2000).The questionhas provoked
a vividdiscussionconcerning whetherthepersistence ofindependent agentdistri-
butionsystemsresultsfromprofoundinefficiencies in theinsurancemarket(market
imperfection hypothesis) orfromspecificservicesprovidedexclusively byindependent
agents(product qualityhypothesis) (Berger,Cummins, andWeiss,1997).Authorsinsup-
portoftheproductqualityhypothesis have statedthatindependent intermediaries
haveincentives toprovidebetterservicestoconsumers thanexclusiveagentsdo,so a
Services 671
separatingequilibriumarisesdespitetheprofound informationasymmetries.In par-

ticular,
independent intermediaries
seemtohavean advantagein mitigating agency
problemsbetweencompaniesand policyholders thatresultfromtheorganizational
form(MayersandSmith,1981;Kim,Mayers,andSmith,1996;ReganandTzeng,1999;
Baranoff and Sager,2003).Bycontrast,
verticalintegration
and theresulting
reliance
on exclusiveagentsaremoreprofitable forinsurancecompanieswhentheyinduce
a highlevelofsales effortfromagentson behalfofthecompany(Sass and Gisser,
1989).Thesameholdstruewheninsurers relyheavilyon advertising(Marvel,1982,
Grossmanand Hart,1986)oron relationship-specificinvestment(Regan,1997).
EmpiricalFindingson Service Quality

Most of theempiricalstudiescarriedout to testthemarketimperfection hypoth-
esis versustheproductqualityhypothesishave showna clearcost advantageof
directwritersoverindependent-agent insurers (Joskow, 1973;CumminsandVanDer-
hei,1979;Bárrese and Nelson,1992; but see also TrigoGamarra,2007a).However,
independent agentsseemtobe bettersuitedto tailoring insurancecoverageto con-
sumers'needsin insurancelineswherecomplexity is highand theriskassessment
on customers is moredifficult (Reganand Tennyson, 1996;Regan,1997;Reganand
Tzeng,1999). There is mixed evidence as to whether independent agentsorbrokers
offerbetterservicequalitythanexclusiveagents,as measuredby claimssettlement
data (Doerpinghaus, 1991;Bárrese,Doerpinghaus, and Nelson,1995).Thereis also
evidencein theU.S. marketthatindependentagentsare less beneficialforlarger
insurancefirms, firms inlargermarkets, and firms thatvaluelong-term relationships
(Regan and Tennyson, 1996,2000;Berger, Cummins,and Weiss,1997;Regan,1997;
Reganand Tzeng,1999).2
None of thesestudieshave explicitly dealt withthe servicequalityprovidedby
singleintermediaries; instead,they have concentrated on thedifferencesin therel-
ativeefficiencyof insurancecompaniesthatuse different distribution
systems.In
addition,theyhave focusedprimarily on the U.S. insurancemarket,particularly
insurance.
property-liability Therefore, theunitsofanalysishavenotbeeninsurance
intermediariesbutinsurancecompanies.In addition,thesestudieshave notdrawn
conclusionsaboutdifferences in qualitybetweensingleintermediaries thatbelongto
thesamedistribution channeloraboutthefactors thataffectsuchdifferences.
Few econometric papershave studiedtheservicequalityprovidedby singleinsur-
ance intermediaries.Etgar(1976)did not findevidenceto supportthehypothesis
thatindependent agentsprovidebetteroverallservicequalitythanexclusiveagents.
Independent agentsaresignificantly moreactivein claimssettlementthanexclusive
agentsare,but evidenceis mixedregarding theirservicequalityin termsof assis-
tancein riskanalysisand placinginsuranceapplications.Cumminsand Weisbart
(1977)obtainedsimilarresultsin a studyon insuranceintermediariesthatoperatein
threedifferent
U.S. statesinpersonalinsurance thatindependent
lines,finding agents
z arenotuniform inanalysis
ofwhether intermediaries more
Findings independent provide
inmitigating
advantage agency problems.
Althoughtherehavebeenpositive for
results the
UnitedStates(Kim,Mayers,andSmith,1996;ReganandTzeng,1999;Baranoff
andSager,
Ward(2003)found
2003), justtheopposite
fortheUnited
Kingdom.
providebetterclaimssettlement servicesand reviewcoveragemoreoften, whilethey

providelessservicequalitythanexclusiveagentsinotherdimensions. Eckardt(2002)
studiedGermanexclusiveagentsand insurancebrokerswho aremainlyengagedin
personallines,andmeandifferences parametric testsrevealeda numberofsignificant
inbothquantitative
differences and qualitative variablesthatsupportedtheproduct
qualityhypothesis.Thisfinding is in linewiththoseofTrigoGamarra(2007b),who
foundevidencethatsupportstheproductqualityhypothesis ina sampleofexclusive
and independent intermediariesactivein theGermanlifeinsuranceindustry. As the
productqualityhypothesis service
states, qualityincreasedwith theshareofcomplex
insuranceproductsinan intermediary's portfolioand withthenumberofadditional
servicesprovided.
Hypotheses
All in all,thereis mixedempiricalevidencein regardtotheproductqualityhypoth-
esis,and no definitive conclusionshave been drawnon otherfactors thataffect the
differences in servicequalityamongintermediaries. Thus,fromour discussionof
transaction cost,search,andprincipal-agent theory,we drawseveralhypotheses. The
product quality hypothesisstates that independent intermediaries provide betterservice
qualitythanexclusiveagentsdo. Fromprincipal-agent theory, itfollowsthata sep-
aratingequilibrium between intermediaries with different levels of servicequality
emerges if credible are
signals given. Since insurance brokers can be legallysanc-
tionedwhentheydo notreacha certainlevelofservicequality, beingan independent
intermediary should be such a credible signal.Principal-agent theory also statesthat
thelowertheinformation asymmetries between principals agents,thebetterthe
and
productquality should be. Accordingly, we contend thatthebetterthecustomers'
knowledge about insurance the
matters, higher the service qualityshouldbe.
The nextthreehypotheses analyzethefactorsthatmightexplainthequalitydiffer-
encesbetweenintermediaries addressedintheproductqualityhypothesis, indepen-
dentoftheirlegalstatus.
The specialization hypothesis statesthatspecializationand economiesof scale and
scope have a positiveimpacton theservicequalityprovidedby an intermediary.
Transactioncost economicsand search theoryindicatethat specializationand
economiesofscalereducethesearchcostsofproducinga particular levelofservice
quality. With an increase in firm size, insurance intermediaries can specializein cer-
taininformation-processing activities andinproviding additionalservices;thus,with
an increasein thenumberofemployees, an intermediary firmcan realizeeconomies
ofscalethrough specialization. There may also be positiveeffects thataredue tospe-
cializationin theproductsofa certaininsurancecompany, a certaininsuranceline,
or particular customersegments.Specificinformation abouta particular insurance
company and itsproducts, about a particular insurance line, or about theparticular
risksand insuranceneedsofa certaincustomer segmentcanbe used moreoftenby
a specializedinsuranceintermediary comparedtoa nonspecialized one.In addition,
by providing additional insurance-related services, such as financial counselingor
claimssettlement, an intermediary cangainadditionalinformation aboutcustomers'
needs and preferences and aboutinsurancecompanies'productsand behavior.If
such information is used in theprocessof givingadviceand counsel,information
Services 673
and servicequalitywillbe increasedby reducingtheinformation asymmetries be-

tweenconsumers and insurancecompanies.Thus,additionalservicesmightlead to
economiesofscope.
The effort hypothesisstatesthatthemoreeffort an intermediaryspendsproducing
information services,thehigher theservicequalityoffered.
Moreprecisely,providing
information and givingadvice on insurancetransactions requiresknowledgeand
skillsin theareasofinsuranceeconomics, financial and con-
socialsecurity,
markets,
tractlaw,tonamejusta few.In linewithsearchtheory, thelargertheintermediary's
investment ininsurance knowledgeand skills,themoreablyhe orshecanprocessthe
information gatheredin thesearch,eventually inbetterservicequality.We
resulting
also contendthatthemoretimeis spenton searching andprocessinginformation and
on counselingcustomers, thebettertheservicequalityprovidedby intermediaries,
independentof whethertheyare exclusiveagentsor independentintermediaries.
Accordingto searchtheory, themoretimedevotedto information acquisitionand
processing or to counselinginterviews,themoreinformation aboutinsuranceprod-
uctsand theircharacteristics and aboutthespecificneedsoftheclientsis gathered
and thebettertheinformation qualitywillbe.
Finally,theinformationalinputhypothesistakesintoaccountthattheservicequality
providedby intermediary dependson thequalityoftheinformational
an also input.
Fromsearchtheory, we derivethatthequalityoftheinformation gainedin a "search
dependsonthequalityoftheunderlying informationsources.Thebettertheseareand
thebettertheacquiredinformation is,thebettertheservice In
quality. addition,from
principal-agenttheory we derive thatthequalityofadvicegivenbyan intermediary
also relieson privatelyheld information by customers.Thus,we contendthatthe
the
better cooperation between the customer and the intermediary,thebetterthe
servicequalitywillbe.
TableAl in theAppendixsummarizes thehypotheses
tobe tested,theindependent
variables,and theexpectedrelations.
Data and EstimationMethods

The GermanMarketforInsuranceIntermediation
TheGermanmarketforinsuranceintermediaries was widelyunregulated until2007
(Rehberg, 2003;Mauntel,2004).Therewereno formalentryrestrictions otherthan
therequirement fora tradinglicensefromtheTradeSupervisory Office(Gewerbeauf-
sichtsamt),whichrequiredonlyhavinga certificate issuedby thepolicestatingthat
theholderhadnocriminal record.No registration,
financial
skills,orfinancial
guaran-
teeswererequired. Conductregulation was also veryweak.Thelegalresponsibilities
ofexclusiveagentsdiffer fromthoseofindependent intermediaries in regardto the
kindand amountofinformation providedtoconsumers. Exclusiveagents'respective
insurancecompaniesare held responsibleifan agentprovidesfalseor misleading
information aboutpolicybenefits, termsand conditions, dividends,or premiums,
butmorestrict liabilityrulesrelatedtoprofessional
negligence applytoindependent
intermediaries.Nevertheless, professional
indemnity insurancewas notcompulsory
foreithergroup.Disclosureregulations wereofa somewhatgeneralnatureas well,
as itwas neitherprescribedindetailwhatinformation had tobe passedtoconsumers
norprescribed in whatformtheinformation exchangewas to be done.It was also
674 TheJournalof Riskand Insurance
customary thatconsumers werenotinformed on thecommission and feesinterme-

diariesreceivedas partoftheinsurancepremiums fortheirservices,so theyusually
actedundertheillusionthattheservicesofintermediaries were"free,"and theprice
oftheirservicesplayedno rolein thecompetition forcustomers in theGermanmar-
ket.3Finally,
therewas a generalban on rebatingcommissions fromeitherinsurance
agentsorbrokers, so theabilityto affect
priceswas legallysanctionedforinsurance
intermediaries.
Our dataareobtainedfroma surveycarriedoutin 2001among4,687self-employed
Germaninsuranceintermediaries. The addressesofthepotentialintervieweeswere
randomly chosenfrom online directories
and fromtheYellowPages.A totalof927
insuranceintermediariesansweredthequestionnaire fora responserateof20 per-
cent.4Amongtherespondents, 423areself-employedexclusiveinsuranceagentsand
504 are independentintermediaries.Data werecollectedrelatedto theindividual
and firmcharacteristics
oftheinsuranceintermediaries,
theservicestheyoffer, the
intermediationprocess,and generalmarketconditions
at thetime.5
DependentVariables
Insuranceintermediary servicesareprimarilyinformation buttheycanalso
services,
includeadditionalservicessuchas riskassessment,claimssettlement,
and lossman-
agement.Sinceservicesareintangible,
theirqualitycannotbe measuredinanobjective
way.Therefore,
quantitative we estimatefourdifferent performance measures.The
firstthree,information
index,additionalservices,and serviceindex,are input-oriented
and measureinformation and additionalservicesprovidedby intermediaries. The
last performance measure,thecontract conclusionrate,is a proxyforinsurancein-
termediaries'economicsuccessthatindicateswhetherprovidingservicequalityis
economically profitable forinsuranceintermediaries.It can be also seen as a more
subjectiveoutput-oriented indicatorthatpointsto how contentcustomers are with
theservicequalityprovided.
Thevariableinformation index,a proxyfortheinformation qualityprovidedbyinsur-
anceintermediaries,is a summary indicator
thatcapturestheweightthataninsurance
intermediary attachesto 27 subjectsrelatedto a customer'sneed forinsurancepro-
tection,insuranceproductsand coverage,policydesign,and contract terms.Halfthe
3
Althoughconsumers mightinitiallycareonlyabouttotalinsurancecosts,costspaid forthe
servicesofinsurance intermediaries
playanimportant rolewhentheydissolutetheircontracts
prematurely. In Germany, until2005,premiums paid in thefirst yearswereusuallyused to
pay offprovisions forintermediaries. Witha lapse rateofaround10%ofnewbusiness,this
practiceresultedin a verysmallsurrender valueforconsumers (BaFin,2003,p. 18).
Sincethereareno marketdata availableon theservicequalityprovidedbyinsuranceinter-
mediaries, theoptimalwayofcollecting information aboutinsurance intermediaries'
service
qualitywouldbe to conducta sufficient numberofmystery shoppinginterviews and then
combinethemwithdataabouttheinterviewed intermediaries'serviceproduction activities.
However,financial constraints
made thisapproachinfeasible so a surveywas carriedout.
Although thisapproachmightentailcommitting a TypeII error,oursamplesize seemslarge
enough to avoid it.For more details
on see
this, Diekmann (2000,pp. 585-602)andStockand
Watson(2003,pp. 68-69).
DSincethe showeda verylow willingness toanswerquestionsrelatedtoremuneration
pretest
patterns, and
costs,turnovers, profits, theywere omittedfromthesurvey.
Services 675
itemsdealwiththeparticularities ofprivateold-ageinsurance becausethisinsurance

linegenerates thelargestshareoftheinterviewed insuranceintermediaries' income
(Eckardt, 2002). The interviewee was asked how much (1 =
importance totallyunim-
portant to 5 = he
veryimportant) gives each item in hiscounselinginterviews. Then,
the27 itemsare summedforeach intermediary, and themeanvalue is calculated.6
Althoughthisinput-oriented variableis concernedwiththecontentoftheinforma-
tionprovided,itmakesno statements abouttheactualinformation providedorabout
whether theinformation provided was accurate from an objective pointofviewsince
participants may tend to overstate their service quality.However, responsebias can
be reasonablyassumedto occursimilarly forall interviewees (Etgar,1976).Never-
theless,our focus is only on the signs,not on the values ofthe coefficient
estimates
reported in the regressions.
Since insuranceintermediaries providenot only information but also additional
transaction-related services,we use thevariableadditional services,whichmeasures
howmanyadditionalservicesaresuppliedtoconsumers otherthaninformation ser-
vices.Finally, we construct an aggregate serviceindexvariableas a proxytoaccountfor
totalservicequalityprovided.Toconstruct thisvariable,we normalizetheinformation
indexand theadditional services variablesand thenaggregatethemadditively. Since
we assumethatinformation servicesare themostimportant servicesprovidedby
insuranceintermediaries, theinformation indexvariableenterstheservice indexwith
doubletheweightoftheadditional servicesvariable.
As a further measurewe use thecontract conclusionratevariableas a proxyformarket
performance and economic success. This variable indicatesthepercentage ofcoun-
selinginterviews an intermediary conducted that in
resulted consumers'actually
concluding an insurance contract. Thevariableshowswhether theprovisionofhigh-
qualityservicepositively influences an intermediary's economicperformance. This
output-oriented variablecanbe also interpreted as a moresubjective indicatorofthe
servicequalityprovidedbecause it indicateswhethercustomersare satisfiedwith
theinformation and advicegivenby an intermediary duringa counselinginterview
and withtheadditionalservicesprovided.Accordingly, thehigheran intermediary's
contract conclusionrate,thebetterherservicequality,as subjectively perceivedby
consumers.
IndependentVariables
The behaviorofinsuranceintermediariesmaydiffer accordingto theirlevel ofin-
dependence from insurancecompaniesand because of different
regulatory rules.
Thevariableintermediary between
typedistinguishes thedistribution
channels exclu-
siveagentsand independent
intermediaries?
Intermediaries helpconsumersto reduce
searchcostsbecausetheyare assumedto have a bettermarketoverviewand,thus,
6Forindividual tobe possible,theadditionalassumption has tobe madethatall

comparisons
intervieweesappliedthesamedistanceintheiranswerson theseitems.Sinceadditionallogit
andprobitestimationsconfirmed therobustness ofthisassumption fortheinformationindex
variable,theyarenotreportedin thefollowing discussion.
7 intermediaries
includebothindependent
Independent agentsand insurancebrokers.
Weuse
thesetermssynonymously inthefollowing discussion.
morecomprehensive information aboutthedifferent insurancecompaniesand their

products.
Whileindependent agentsandbrokers provideinformation abouta numberofdiffer-
entinsurance companies, exclusive agentsrepresent only singleinsurance
a company
and itsproducts.Althoughthiscondition implies that theyprovidelesscomprehen-
siveinformation thanindependent intermediaries do, theoveralleffect ofrepresent-
a
ing singlecompany on the service qualitymight ambiguous.Byspecializingin
be
a particular
insurancecompany, an intermediary can gainan in-depth knowledgeof
thecompanyand itsproductsthatan intermediary witha broadermarketoverview
mightnothave.To accountforthispotentially offsetting effect,we includevariables
forspecialization on an insurance company and itsproducts and forinsurancecompany
thelatterof whichmeasures weight
reputation, the intermediaries attachedto the
insurancecompany'sreputation in termsofitsabilityto conveya good reputation
to theintermediaries themselves. Thus,we takeintoaccountthatspecialization in a
certaininsurancecompanymightbe theoutcomeofa deliberate selectionprocess.
To capturefurther the impactof specializationeffects and economiesof scale in
producing intermediation services,we include variables that accountforfirm sizeand
in
specialization a certain insurance line(old-ageinsurance) and in customersegments.
The morespecializedan insuranceintermediary is in theserespects,thebetterthe
information qualityprovidedshouldbe, sinceshe can realizeeconomiesof scale.
We also asked forthenumberofadditional servicesprovidedto determine whether
therewereeconomiesofscope.Finally, tocontrolfortheimpactofmarketconditions
we add a variablethatmeasuresthecompetitive pressure. Itfollowsfrommonopolistic
competition that an increase incompetition should result ina higherdegreeofproduct
In thecontext
differentiation. ofthecurrent study, an increase in competitionwould
suggest betterinformation quality and more additional services.
The questionnaire inquiredabouthumancapitalvariablesas inputsused forpro-
ducing information and transaction services.The age of theintermediary and his
investment in humancapital(formal education,[additional] training,universitydegree,
workexperience, further training)are proxiesto accountforservicequality. Partic-
ipantswere also asked whichpercentageof theirtotaltimebudgettheyspenton
acquisitionand processing,
certainactivities(information counselinginterviews,
further
claimssettlement,
training, Theaveragedurationofcounseling
salesefforts). interviews
in absolutetermsis used to accountforthequantitative
input to serviceproduction
(durationjnterviews).
Sincethe qualityof the information provideddependsalso on the qualityof the
information sourcesused,we calculatethevariableinformationsourceas theproduct
oftheimportance ofa certaininformationprovider(such as an insurancecompany
or a ratingagency)to an intermediary she attachesto it.There
and theobjectivity
is no variablethatshows the credibilityattachedto furthertraining as a reliable
information source,so sourceJurther indicates
training only the importance of this
0Such
proxiesarewidelyusedinempirical lendinginordertoaccount
studieson relationship
forthequalityoflendersand,thus,to assessthedegreeofasymmetric between
information
banksand theircustomers.See, forexample,Bergerand Udell (1990)and Neubergerand
Raethke-Doeppner (forthcoming).
Quality of Insurance IntermediaryServices 677
information sourcewithoutmakingstatements aboutan intermediary's perception

ofitsobjectivity.We expectthatintermediaries who relystrongly on morecredible
information sourcesprovidebetterqualityinformation totheircustomers.
Toaccountfortheinformation content
provided,theinterviewees wereaskedtoweight
aspectsofcounselinginterviews
27 different thatare relevantto consumers'rational
decisionsrelatedto insurancecoverage(see information index).9We assumedthat
an intermediary informshercustomers moreextensively aboutthoseaspectsofthe
decisionto whichtheintermediary attachesmoreweight.Together withquestions
relatedto generalinformation, productinformation, and information on contract
design,the interviewees were questionedabout particulartopicsrelevantto old-
age insurance.Furthermore, as the participationin surplusis an important sales
argumentforlifeassurances,questionswere asked about thissubjectto see how
muchweightintermediaries put on informing consumersabout the components
of the calculationsnormallyused. By performing a factoranalysis,we extracted
sevenfactors as independent variablesto accountforthequalityoftheinformation
contentprovided.10 Thesevariablescomprehend information on personalriskprofile
andsecurity generalaspectsofinsurance,privateold-ageinsuranceproducts,
options, policy
contract
design, contract
design, executionand calculationof rates.
participation
in customers'
Differences knowledge aboutinsurancematterscan also lead to differ-
encesin thequalityoftheinformation provided,sincesuchdifferencesmayreduce
informationasymmetriesbetween consumers and intermediaries. themore
Generally,
knowledge consumers have aboutinsurance the
subjects, higher theinformationqual-
ityfroman intermediaryis expectedtobe since,otherwise,unimpressedcustomers
would turnto anotherintermediary.Sincetheproduction servicesis
ofinformation
theresultofa cooperative an
thequalityoftheadvicegivenby intermediary
effort,
also dependson informationprivatelyheldby thecustomer; themoreknowledgea
customerhas on insurancerelevantmatters, theless effort
theintermediary has to
expendextractingthisinformationfromthecustomer.
To measureconsumerdemandwe includecustomers' demand services
forinformation
and customers'demand foradditional services.
free We asked whether such demand
had increasedoverthepreceding6 months.In 2001,pensionreform had beenhigh
on thepublicagenda in Germanyand had been widelycoveredin themedia.To
copewiththedemographic changesahead,reforms entailedtheintroductionoftax-
subsidizedprivatepensionsin additionto thethusfarfairlycomprehensive public
pensionschemes.Giventhesomewhatagitatedpublic(and private)debatesabout
thefutureofpensionentitlements,a higherdemandforinformation servicesshould
have had a positiveimpacton the information and servicequalityactuallypro-
vided,and thesameholdsforthedemandforadditionalservices.Customers' knowl-
edge and demand variablesarealso proxiesforthe of
intensity cooperationbetween
9Sincethe
dependentvariableinformationindexis based on thesame27 items,thefollowing
variablesareused onlyas regressors
on theadditionalservices
and thecontract
conclusion
rate
variables.
10Theresultsofthefactor
analysisareavailablefromtheauthorsuponrequest.
an intermediary
and his customer;themoreintenseit is, themoreprivatelyheld
consumers'areassumedto disclose.11
information
Estimation
Methods
The hypothesesare testedusingOLS estimations.12 The servicequalitydepends
on
primarily supply-side factors.To accountfor demand-side factors,we include
customers' knowledge and customers' demand for information and additionalfree
services.Thus,ourresultsmightbe compromised by simultaneous equation bias be-
causeofendogeneity. Ifsuchis thecase,theproblemcouldbe mitigated byutilizinga
two-stage leastsquares (2SLS) estimation and
procedure instrumenting the demand
variables.However,forthefollowing reasons,we thinksimultaneous equationbias
is notpresent.Intermediaries' servicesare mainlyintangible goods,which arepro-
ducedbyinteraction. Theservicequalityprovidedby an intermediary dependsto a
on
largedegree gaining information abouthis or her customers'preferences,needs,
and risksthrough communication. Suchinformation is an inputfactorin producing
high-quality information services.Becauseall variablesthataffectconsumers'de-
mandforservicequalitycan be communicated in counselinginterviews, theyalso
affecttheservicequalityactuallysuppliedby theintermediary. Moreover, themain
determinants ofconsumerdemandarenotexogenousand,therefore, cannotbe used
as an instrument in 2SLS.13We arenotawareofanymeaningful variablethatcould
be used as an instrument in 2SLS or otherrelatedestimation methodsforourdata.
Besides,we areprimarily interestedin thesignsoftheestimatedcoefficients, notin
theirabsolutevalues.Toensurethatourresultsarenotcompromised by simultaneous
equationbias,we performed additionalestimations withoutthedemand-sidevari-
ables.Thesemodifications had no impacton thesignsoftheestimatedcoefficients.
Thisresultcorroborates thechoiceofOLS as theappropriate methodforestimating
theservicequalityprovidedbyan insuranceintermediary.
We assumethattheindependentcontinuousvariablesage,workexperience, further
durationjnterviews,
training_number, source,source
information and ad-
Jurthertraining,
ditional havea positivebutdecreasingeffect
services on theservicequalityprovided,
so we use theirlogsin theestimated We
equations. perform semi-logOLS estimates
index,additionalservices,and serviceindex.We
forthe dependentvariables information
applya logisticfunctionforthecontractconclusion
rateas dependentvariable(Cooper
andNakanishi, 1988),whichaccountsforthefactthat,whenstarting froma lowlevel,
a risein inputsfirstresultsin excessively
highand then in low
disproportionately
increasesin thecontractconclusionrate.
All in all,we perform foreach dependentvariable.Models 1-4
threespecifications
testfortheproductqualityhypothesis and forthespecialization while
hypothesis,
11TableA2 in the thedefinitionsand measurements ofthevariables.

Appendixsummarizes
Themaindescriptive ofthevariablesarereported
statistics inTableA3 intheAppendix.
u Forthe ofthelinearOLS regression, see Greene(2000,pp. 210-264).The es-
assumptions
timationsarecorrected wherenecessary.
forheteroskedasticity coefficients
The correlation
betweentheindependent variablesshowedno indication ofmulticollinearity.
LóForthisreason,a variableshouldaffect
onlyconsumersdemandforservicequalityand
shouldhaveno impacton intermediaries' decisionsabouttheirqualitysupply;thatis,the
variableshouldbe bothrelevant and exogenous.See StockandWatson(2003,pp. 331-372).
Services 679
models5-8 testfortheeffort hypothesisand fortheinformational

inputhypothesis.
The effectofcombining all hypotheses is shownin models9-12. Forthevariables
see TableAl intheAppendix.Theresultsarediscussedin
used ineachspecification,
thefollowingsection.
EstimationResults and Discussion

resultsoftheOLS regression
Theempirical inTable1.
equationsarereported
ProductQualityHypothesis
Theproductqualityhypothesis statesthatindependent intermediaries providebetter
servicequalitythanexclusiveagents.Accordingto all ourmodels,thisis confirmed
whenusingtheinformation indexorthecontract conclusionrateas dependentvariable.
to an
Compared being independent intermediary, being exclusiveagentand,thus,
an
moredependentoninsurance companies, has a significantlynegativeimpactonboth
information qualityand the contract conclusion rate.
However, when usingadditionalservicesas thedependentvariable,we findtheoppo-
becauseexclusiveagentsprovidea significantly
siteeffect largernumberofadditional
services.Thisfinding mightbe due totheparticularities ofmonopolistic competition
in themarketforinsuranceintermediaries. Exclusiveagentsare moreconstrained
thanindependent intermediaries whenit comesto verticalproductdifferentiation.
Sincetheydepend on theinsurancecompanytheyrepresent forthenumberand
qualityof theinsuranceproductstheydistribute, theyare morerestricted in their
abilityto improvetheirinformation quality.Thus,theyhave to relymoreon hori-
zontalproductdifferentiation, thatis, on offering additionalservices.Thisfinding
is supportedby our estimations, as thevariableinsurance company has a
reputation
significantlypositiveimpacton theinformation qualityin models1 and 9, whileit
has a significantly
negativeimpacton thenumberofadditionalservicesprovidedin
models2 and 10.Intermediaries thatareconfident inthequalityoftheinsurance com-
paniestheyrepresent specializemoreinproviding high-quality informationservices
and offerfeweradditionalservices, althoughdoingso does notresultin a significant
improvement inmarketperformance as measuredbythecontract conclusion
rate.
whenusingservice
Finally, indexas thedependentvariable,we findno statistically
differences
significant between exclusiveagentsand independentintermediaries.
this
Clearly, result
is due to thecontrasting ofexclusiveagentson information
effects
servicescomparedto theireffect on additionalservices,as shownin models1 and
2. Fromprincipal-agenttheory we derivedthatcustomers' knowledgereducesinfor-
mationasymmetries and leads to an improvement in theservicequalityprovided.
However,according toourestimations, servicequalitydoesnotdependonthedegree
ofinformationasymmetries between consumers and intermediaries
as measuredby
consumers'knowledge aboutinsurance relatedmatters(models1-4).
Specialization Hypothesis
Models 1-4 also testfortheimpactof specializationand economiesof scale and
scope on theservicequalityprovidedby insuranceintermediaries.
The coefficient
estimatesforfirmsize show only foradditionalservicesa significantly
negative
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Services 689
effect forsmallfirmsize. Clearly,it pays less forsmallerintermediary firmsto of-

feradditionalservicesthanforlargerones to do so. In addition,specialization in a
certain insurancecompany and itsproducts shows no statistically coefficient
significant
estimates. Bycontrast, in old age insurancehas a significantly
specialization positive
impacton boththeprovisionofadditionalservicesand totalservicequality(models
2, 3, and 10). Thisproductrangeprovidesamplescope forintermediaries to offer
additionalservices,and theseadditionalservicesalso increasetotalservicequality.
Wealso finda positiveimpactforspecialization in customer segmentson theinforma-
tionqualityand thetotalservicequalityprovided,whichimpactis also statistically
significantinmodels1 and 3. However,according tomodel4,segmentspecialization
is notreflected in a significantly
higher contractconclusion rate.
Finally,whenusingadditional servicesas an independent variable,we findsignificantly
positivecoefficient estimatesfortheinformation indexand thecontract conclusion
rate.
Thus,ourfindings inmodels1,4,9,and 12supportthehypothesis thateconomiesof
scopecanbe realized.
Whencontrolling forconsumers' demandon information and additional
provision free
our
services, estimations show a positiveimpacton theinforma-
mostlysignificantly
tionindex,additionalservices
and theserviceindex.However,thereis no statistically
effect
significant on the economic performance as measuredbythecontractconclusion
rate.Whencontrolling foreffortexpended and informationalinputsin models7 and
10,we findthat high demand forinformation servicesby consumers significantly
reducesthenumberofadditionalservicesprovided.Allinall,intermediaries seemto
takethedemandoftheircustomers intoaccountin determining theextentand type
ofservicesprovided.
To accountforthe impacton servicequalityof differences in marketconditions
(competition),we include thevariablecompetitive which
pressure, showsno impact
on theinformation servicequalitybuta significantlynegativeimpacton thecontract
conclusionrate.
Effort
Hypothesis
In models5-8, we analyzetheimpactof investment in humancapital,insurance-
relatedknowledgeand skills,and timespenton different activitiesas proxiesto
explain differencesin servicequality.Since independent intermediaries distribute
product information from more insurance companies than exclusive agentsdo, we
includetheintermediary typeto control
for the resulting in
differences search efforts.
According toourestimationresults,neitherformaleducational additional
levels, training
norworkexperience have any explanatory powerin regardto thedifferent quality
indicatorsused. Thus,it makesno senseforconsumersto use theseas signalsfor
theinformation and servicequalityofan intermediary. An increasein ageshowsa
significantlynegativeimpacton thenumberofadditionalservicesprovided(model
7),possiblybecauseprovidingadditionalservicesrequiresadditionalinvestment in
knowledgeand skills;following humancapitaltheory, onecanarguethatwillingness
to incursuchinvestment decreaseswithage,sincetheolderan intermediary is,the
lesslikelyshewillbe abletorealizethegainsinherremaining workinglife.Model8
showsthatthecontract conclusionrateis also negativelyaffected byan intermediary's

increasing age,possiblybecause theolder the the
intermediary, less important new
businessis sinceshederiveshermainincomefromlong-term customers. Whilefurther
traininghas a significantly
positiveeffect on theservicesprovided(models5-7),we
finda significantly
negativeimpact of further trainingon thecontract conclusion
rate
(model8).
Whentheinformation indexis thedependentvariable,inmodels5 and9 thecoefficient
estimates forthepercentage oftimespentoncounseling interviews,further and
training,
claimssettlementaresignificantly
positive.Theseresultsareconsistent withtheeffort
hypothesis. However,claimssettlement activitiesdo notpay offforintermediaries
in termsofeconomicsuccess;timespenton claimssettlement has a negativeand,in
model12,a significantimpactonthecontract conclusionrate.Inaddition, thecoefficient
estimate forthepercentage oftimespentonsalesefforts showsa significantly negative
impacton thecontract conclusionratein models8 and 12,suggesting thatmoresales
effortoccurswhencontract conclusionratesarelow,thatis,wheneconomicsuccess
is poor.Thecoefficientestimatefortheabsolutetimespenton counselinginterviews
Jnterviews)
(duration showsa significantly positiveimpactacrossall servicequality
indicators in models5-12,withtheexceptionofadditionalservicesoffered (models
7 and 10). Thus,timespenton counselingenhancesboththeinformation quality
providedandthetotalservicequalitysuppliedandalsoresultsina higherpercentage
ofcontracts concluded.
Summarizing, ourevidencedoes notconfirm
theeffort evenwhilecon-
hypothesis,
for
trolling insurance
intermediarytype.
Informational
InputHypothesis
Theinformational inputhypothesis predictstheimpactofinformational inputon the
qualityofintermediation services provided. While models 5, 6,9, and 11 estimate the
effectofdifferentinformation sourcesand consumers'cooperation, models7, 8, 10,
and 12also accountfortheinformational content providedincounselinginterviews.
The estimation resultsformodels 5 and 9 indicatethatintermediaries who rely
on
strongly ratingagencies, and
science, specialist publications as sources of credible
information providesignificantly better
information quality and totalservice quality.
Inregardtoinformation quality,a strongrelianceonconsumer associationsas a credible
sourceofinformation also showsa significantly positiveimpact.
Our datain models8 and 12 reveala significantly positiveimpactoftheinformation
contentprovided on thecontract conclusion rate based on theweightan intermediary
on
puts informing his customers about their personal riskprofile andsecurity options
and on thecalculation ofparticipationratesof life insurance products. By contrast,
providinginformation aboutpolicydesign, contract design, and contract execution has
no significant in
impact any model, its
despite alleged importance to the quality of
theinsurancepurchasetransactions.
Theservicequalityprovidedbyaninsurance intermediary isinparttheoutcomeofan
interactive
process between theintermediary and the customer, sinceitalso depends
on therevelationof privatelyheld information by the consumer. Accordingly, we
hypothesized thatthehighertheirknowledgeresp.demandis,thebettertheoverall
outcomeshouldbe.Fortheinformation index(model5) andfortheservice index(model
6) our estimations show significantlypositivecoefficient
estimates for consumers'
knowledge about theirrisk These
profile. findingssuggestthatintermediaries provide
onlyadditionalinformation and thushigherinformation quality,iftheircustomers
alreadyhavea highlevelofknowledgeabouttheirriskprofile. Inregardtoadditional
servicesand tothecontract conclusionrateconsumers'knowledgeseemstoplayno
role,sincewe findnostatistically relevantinfluence.
Tosummarize, consumers cannot
expect intermediaries to automatically provideadditionalinformation in case they
haveonlylimitedknowledge.
Althoughthe cooperationbetweeninsuranceintermediaries and theircustomers
affectsthequalityoftheadvicegiven,consumersmightnevertheless differ in their
willingness to participatein thecounselingprocess.To accountforsuchdifferences
amongconsumers, we use consumers' demand provision
forinformation and consumers'
demand foradditionalservicesforfreeas proxies.Models5 and 7 confirm ourfindings
alreadystatedin regardtothespecialization hypothesis.
All in all, our evidenceshows some supportforthefindingsof transaction costs,
searchand principal-agent theoryas statedin theinformational inputhypothesis.
However,thereseemsto be a conflict forintermediariesbetweeneconomicsuccess
as measuredbythecontract conclusionrateand providingdetailedinformation about
relevant contractual aspects of insurance coverage.
Discussion
To see theeffect ofcombining ourhypotheses, we estimatemodels9-12.Theyshow
thatour findings frommodels1 to 8 are quiterobust.In addition,theexplanatory
powerof our estimations clearlyimproveswhenincludingvariablesthataccount
fortheefforts spent and the informational inputsused in providingintermediation
services.The adjustedR2sof fourservicevariableproxiesincreasefrommodels
all
1 to 4 to models9 to 12 by between6 percentand 12 percent,respectively. This
indicatesthatservicequalitydependsnotonlyon whetherintermediaries aremore
or less (in-)dependentfrominsurancecompanies.Thereare additionaldifferences
in theservicequalityprovidedby intermediaries thatcannotbe explainedby them
beingeitherexclusiveagentsor insurancebrokersbutby theinformation-gathering
and -processing activitiestheyperform.
For analyzinghow sensitiveour findingsare withrespectto thefunctional forms
applied, we carriedout a number oflogitand double-logestimations.14
Their results
confirm themainfindings fromabove.Besides,we performed a numberofstability
tests.Theyalsoshowno indication thatomittedvariablesorincorrect
functional form
createbias in thecoefficient estimates.In addition,we performedpost hocstatistical
powertests(Cohen,1988),whichprovideno evidencethatour regressions suffer
fromlow statistical power(see Table1).
14 results
canbeobtained
from
theauthors
Regression uponrequest.
Conclusions
Quiteinaccordance withtheempirical ourestimations
literature, provideno uniform
evidenceon theproductqualityhypothesis. According toourfindings, independent
agentsand insurancebrokersprovidebetterservicequalitywheninformation ser-
vicesand theircontract conclusionratesareused as proxies,whileexclusiveagents
providesignificantly moreadditionalservices.Whentakentogether, then,thereare
no significant differences
tobe foundbetweenthesevariousdistribution channelsin
regardtothetotalservicequalityprovided.
Alsoinregardtothespecialization hypothesis,ourfindings arenotuniform. Increas-
ing firm size enablesinsuranceintermediaries to realizeeconomies of scale onlyin
regard to theprovisionofadditionalservices.
Our data do not giveevidence thatfirm
sizematters inregardtoinformation quality,totalservice or
quality, the contractcon-
clusionrate.Accordingly,acquiringandprocessing information abouttopicsrelevant
forconcludingan insurancecontract seemto exhibitdivisibility amongmembersof
thesame agency.Thisis in linewithfindings ofCummins(1977)thatthereare no
scaleeconomiesforindependent insuranceagents.Besides,according toourfindings
thereareno economiesofscale to be realizedby specializingon an insurancecom-
panyand itsproductsoron a certaininsurance line.However,thereis someevidence
thateconomiesof scale can be realizedby specializingon customersegments.Be-
sides,in accordancewiththespecialization hypothesis we foundclearevidencethat
economiesofscopecanbe realizedbyoffering additionalservices.
As concernstheefforts spentby insuranceintermediaries, we findthattheduration
ofcounselinginterviews is thesinglemostimportant factorthathas a positiveeffect
bothon theinformation qualityand on thetotalservicequalityprovided,whileit
simultaneously paysforintermediaries
also as itincreasestheircontract conclusion
rate.In contrast
tothat,we findno evidencethatdifferent educationallevelsoraddi-
tionaltrainings
showa significant impact.Thus,suchcertificatesshouldnotbe used
by consumers as indicatorsof highservice
quality.Moreover, our data givesomesup-
for
port findings derived from transaction and
costs,search, principal-agent theory
thattheservicequalityprovidedis positivelyaffected by theinformational inputs
used.Finally,
we findthatdespitetheprofound information asymmetries betweenin-
suranceintermediaries and theircustomers,consumers' demandforinformation and
additionalservicesindeedresultsin betterservicequality.Thus,moredemanding
consumersshouldexpectintermediaries to providebettercounselingand advisory
services.
All in all,we findthattheservicequalityofinsuranceintermediariesnotonlyde-
pends on whethertheyare exclusiveagentsor insurancebrokers.Thereare also
qualitydifferences thatcannotbe accountedforby the distribution channelto
whichan intermediary belongs.Accordingto our findings,thequalityof theser-
vices provideddepends also to a largeextenton the information-gathering and
-processing oftheindividualintermediaries.
activities Becauseoftheimportant role
insuranceintermediaries play in insurancemarketsin reducinginformationasym-
metriesbetweenconsumersand insurancecompanies,additionalresearchshould
be undertaken tobetterunderstand how highservicequalityis produced.Thus,re-
searchefforts shouldconcentrate notonlyon explainingthecoexistence
ofdifferent
Services 693
distributionsystemsbut also on explainingdifferences in servicequalitywithina

particulardistribution
channel. Besides,furthereffortsare necessaryto findbetter
proxiesto accountforinsurance intermediaries'
service quality.One mainlimitation
ofourdatais thattheydo notallowus tomakeanystatements abouttheinformational
content an
actuallyprovidedby intermediary to his customers.To getsuchdata,for
example, a combination of mystery shopping interviews with a follow-upsurvey
on theinformation-processing activities
oftheinterviewed intermediariescouldbe
performed.
Appendix
Table Al
Hypotheses
ExpectedSignof
Hypotheses Variable
Independent Coefficient
Estimates
Product-quality
hypothesis
Independentintermediaries Exclusive
agent -
providebetterservicequality. Insurance reputation
company +
Consumers'knowledge +
Specializationhypothesis
and economiesof
Specialization Firmsize +
scaleand scopelead tobetter Insurancecompany +
servicequality. Insuranceline +
Customersegment +
Additionalservices +
Efforthypothesis
Themorean intermediary invests Formal
education
in generaland (Additional)
training +
human
insurance-specific University
degree +
capital(knowledgeand skills) Workexperience +
and themoretimean Further
training +
intermediary spendson Timebudget:
information processingand Information
processing +
counseling the
interviews, better interviews
Counseling +
theservicequalityprovided. Further
training +
Claimssettlement +
Sales efforts ?
Duration
interviews +
Informational inputhypothesis
Thebetter theinformation sources source
Information +
usedbyan intermediary are,the content
Information +
moreinformation aboutrelevant Customers'
knowledge +
subjectsan intermediary Customers
demand +
providesincounseling
interviewsand themore
consumers7 thebetter
cooperate,
is theservicequalityprovided.
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Services 697
Table A3
Descriptive Statistics
Min Max Mean Median StdDev N

Dependentvariables
Information index 1.407 5.000 3.716 3.703 0.531 917
Contractconclusion rate 0.050 1.000 0.647 0.700 0.226 839
Additionalservices 0.000 15.000 6.650 7.000 2.333 927
Serviceindex 6.000 15.000 11.330 11.000 1.484 912
Independentvariables
Intermediary type
Exclusiveagent 0.000 1.000 0.452 0.000 0.497 933
Firmsize
Small(1 to3 employees) 0.000 1.000 0.642 1.000 0.479 910
Medium(3 to9 employees) 0.000 1.000 0.280 0.000 0.449 910
Large (more than 9 employees) 0.000 1.000 0.076 0.000 0.266 910
Specialization
Insurancecompany 0.000 1.000 0.605 1.000 0.489 915
Insurancecompanyreputation -3.838 2.783 0.000 0.076 1.000 864
Insuranceline 0.000 1.000 0.384 0.000 0.486 938
Customer segment 0.000 1.000 0.567 1.000 0.496 938
Age 20.000 64.000 43.102 42.000 8.966 929
Formaleducation
Lowersecondary school 0.000 1.000 0.118 0.000 0.323 935
Intermediate leavingcertificate 0.000 1.000 0.376 0.000 0.484 935
Certificateofaptitudefor 0.000 1.000 0.186 0.000 0.389 935
specialized shortcoursein higher
education
(Additional) Training 0.000 1.000 0.915 1.000 0.278 933
University degree 0.000 1.000 0.266 0.000 0.442 905
Workexperience 1.000 48.000 16.059 14.000 8.324 928
Furthertraining_number
Timebudget
Information acquisition and 0.000 0.700 0.212 0.200 0.124 866
processing
Counselinginterviews 0.000 0.900 0.368 0.350 0.157 867
Furthertraining 0.000 0.500 0.115 0.100 0.066 867
Claimssettlement 0.000 0.500 0.111 0.100 0.076 866
Salesefforts 0.000 0.700 0.061 0.050 0.057 867
Duration_interviews 10.000 180.000 56.710 60.000 31.314 884
Information source
Insurancecompanies 1.000 25.000 11.064 10.000 5.745 906
Professionalassociations 1.000 25.000 12.090 12.000 5.735 866
Ratingagencies 1.000 25.000 11.295 12.000 6.257 861
Consumers7 associations 1.000 25.000 8.109 8.000 5.412 861
Science 1.000 25.000 9.244 9.000 5.534 821
Specialistpublications 1.000 25.000 13.830 13.500 5.489 896
(Continued)
Table A3
Continued
Min Max Mean Median StdDev N

Generalmedia 1.000 25.000 6.668 6.000 4.485 873
Sourcejurther training 1.000 5.000 2.340 2.000 1.095 898
Information content
Generalaspects -4.126 2.489 0.000 0.105 1.000 828
Calculationofparticipationrates -3.543 2.853 0.000 0.092 1.000 828
Contractdesign -2.811 4.293 0.000 0.043 1.000 828
Personalriskprofileand security -5.875 2.804 0.000 0.089 1.000 828
options
Policydesign -3.706 2.305 0.000 0.036 1.000 828
Privateold-ageinsurance products -3.274 2.120 0.000 0.122 1.000 828
Contractexecution -3.272 3.013 0.000 0.094 1.000 828
Customers' demand
Informationprovision 1.000 5.000 4.008 4.000 0.751 918
Additionalservicesforfree 1.000 5.000 3.753 4.000 0.928 916
Customers' knowledge
Riskprofile 1.000 5.000 2.647 3.000 0.763 921
Old-ageprotectionprovisions 1.000 5.000 2.749 3.000 0.747 919
(Dis-)Advantagesofinsurance 1.000 5.000 2.326 2.000 0.862 920
products
Competitive pressure 1.000 5.000 3.326 3.000 1.005 893
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American Risk and Insurance Association

The Quality of Insurance Intermediary Services— Empirical Evidence for Germany

The Quality of Insurance Intermediary

qualityprovidedby competinginsuranceintermediaries untilwell aftertheinfor-

themselves. Furthermore, we provideinsightson otherfactorsthatexplainquality

Searchtheoryidentifies a numberoffactors thataffect theservicequalityprovided

separatingequilibriumarisesdespitetheprofound informationasymmetries.In par-

EmpiricalFindingson Service Quality

providebetterclaimssettlement servicesand reviewcoveragemoreoften, whilethey

and servicequalitywillbe increasedby reducingtheinformation asymmetries be-

Data and EstimationMethods

customary thatconsumers werenotinformed on thecommission and feesinterme-

itemsdealwiththeparticularities ofprivateold-ageinsurance becausethisinsurance

6Forindividual tobe possible,theadditionalassumption has tobe madethatall

morecomprehensive information aboutthedifferent insurancecompaniesand their

information sourcewithoutmakingstatements aboutan intermediary's perception

11TableA2 in the thedefinitionsand measurements ofthevariables.

models5-8 testfortheeffort hypothesisand fortheinformational

EstimationResults and Discussion

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effect forsmallfirmsize. Clearly,it pays less forsmallerintermediary firmsto of-

showsthatthecontract conclusionrateis also negativelyaffected byan intermediary's

distributionsystemsbut also on explainingdifferences in servicequalitywithina

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