This article examines whether the independent agents provide better service to their customers than sole representatives of direct writers. Results of a survey of a sample of both types of insurance agents indicate that even though the former apparently excel on some service dimensions, the latter perform as well as or even better than the independent agents on other dimensions. The emergence of the direct writing insurers as major suppliers has been one of the most important changes which has occurred in the property and liability insurance industry in the past two decades. The direct writers, who in the thirties controlled only a small part of the market, today control over thirty percent and in some specific areas of property and liability insurance, e.g. automobile insurance, write well over fifty percent of the premium volume.' Several studies indicate that a major advantage of the direct writers has been their ability to reduce acquisition costs well below industry's averages, largely by paying lower commission rates. According to the Stanford Report, in the 1960-1965 period, the direct writers had an average expense ratio of 21-23 percent as compared to 33-35 percent for all stock companies. The lower expense costs allowed the direct writers to experience lower than average combined ratios and to achieve underwriting profits.2 A frequent argument is that the direct writers could pay lower commission rates because their distributors provide less service to their customers than do the independent agents. This point of view was summed up by Mehr as follows: Independent insurance agents and brokers for example argue that they are needed for creative selling, to give personalized risk management counsel Michael Etgar is Assistant Professor in the School of Management, State University of New York at Buffalo. Dr. Etgar has published not only in The Journal of Risk and Insurance but also in the Journal of Marketing Research, Journal of Industrial Economics and the Journal of Business Research. This paper was submitted for publication in final form in April, 1976. ' See Paul L. Joskow, Cartels, Competition and Regulation in the Property and Liability Insurance Industry, Bell Journal of Economics and Management Science, Vol. 4, 2 (Autumn 1973) 375-427; and, The Future of the Independent Agent prepared by the Stanford Research Institute (known as the Stanford Report) (New York: The National Association of Insurance Agents, 1967) 4. 2 Stanford Report, Table 16. ( 487 ) This content downloaded from 207.46.13.114 on Thu, 26 May 2016 06:05:10 UTC All use subject to http://about.jstor.org/terms 488 The Journal of Risk and Insurance to prospective insureds, to find adequate markets for needed coverages and to aid in loss adjusting.3 The independent agents thus have been depicted as providers of a variety of personalized services tailored to the individual needs of specific insurance buyers. The direct writers on the other hand were perceived as mass merchandisers who sacrifice personalized service for the sake of lower costs and prices. Yet to what extent is such differentiation correct? Do independent agents provide better service than the representatives of the direct writers? So far, no attempts have been made to test the issue empirically; statements made on the subject usually reflect impressions or hypothetical argumentations. The absence of empirical research on this issue reflects the inherent difficulties which face any scholar who attempts to measure the services that insurance agents provide to their customers. While the notion of such services is intuitively patent, expression of the concept through measurable and quantifiable variables is both highly complex and controversial. This article treats the complex issue of measurement and then proceeds to compare the service performance of independent insurance agents and of sole representatives of direct writers. The data used were developed from a survey of insurance distributors of both types. The methodological complexities involved suggest that the study is exploratory and should be so viewed. Its major purpose primarily is to indicate that empirical research on these issues is feasible and to encourage further research and discussion. The hope is that this discussion will help clarify to insurance suppliers, distributors, regulators, and the public, the nature of the services provided by insurance distributors to their customers. Also, hopefully, it will help determine the relative performance of the different types of insurance distributors in providing customer services.