Academic journal article Journal of Risk and Insurance

Conflict and Channel Management in Property-Liability Distribution Systems

Academic journal article Journal of Risk and Insurance

Conflict and Channel Management in Property-Liability Distribution Systems

Article excerpt

Conflict and Channel Management in Property-Liability Distribution Systems

Abstract

Using data provided by 94 insurance marketing managers, this study examines the distribution channel management strategies of the property-liability insurance industry. Results from the study indicate that channel conflict does not vary significantly between independent agency and exclusive agency insurers. Independent agency insurers use significantly more coercive and significantly less noncoercive agency management strategies than do exclusive agency insurers. The use of coercive channel management strategies was associated with increased channel conflict for both independent agency and exclusive agency insurers. The use of noncoercive channel management strategies was associated with decreased channel conflict for independent agency insurers, but not for exclusive agency insurers.

Introduction

While several studies [Etgar (1977, 1976B, 1976C)] have examined the strategies used by property-liability insurers to attain efficiency within their marketing distribution channels, additional research on insurance channel relations (i.e., the relationship between insurance marketing managers and their agents) appears to be warranted. Agents' commissions accounted for 12 percent of the net premiums written by property-liability insurers in 1987 [A. M. Best Company (1988)], and effective coordination between insurers and agents is a vital component in maximizing the return from these expenses and in the consistent implication of marketing strategies [Booms and Bitner (1981), Etgar (1976B)]. Throughout the 1980s, however, relations between many insurers and their agents would appear to have deteriorated, especially among insurers using the independent agency distribution. (1) Independent agents' associations have publicly criticized several of the actions taken by their insurers to improve marketing effectiveness [Fenske and Freedman (1987), Friedman (1984, 1986)]. In contrast, little information is publicly available about the agency management practices used by exclusive agency insurers, perhaps because the insurers' influence over their marketing systems has prevented the exclusive agents from developing active (and hence vocal) trade associations.

This study examines the agency management strategies of the property-liability insurance industry. Attention is focused on the effects that such strategies have on channel conflict. (2) Agency management strategies and measures of agent-insurer conflict are compared between independent agency and exclusive agency insurers in recognition of their inherent organizational differences. A description of the literature on channel management and conflict is provided in the next section of this article, followed by a discussion of the research methods, results, and implications of this study.

Channel Management and Conflict

Previous research suggests that insurance managers can control the behavior of their agents more effectively by utilizing coercive and noncoercive channel powers. (3) If agents perceive that an insurer has attained power and can exercise that power in a punitive or beneficial manner when dealing with them, they are more likely to act in accordance with the strategic goals of that insurer. Channel conflict can arise, however, if agents perceive the goals of their insurer(s) as a threat to the attainment of the goals of their agencies. When faced with such conflict, agents may attempt to overcome the control of their insurers by exercising countervailing powers which enable agents to resist and the counterbalance the influence of their insurers [Etgar (1976A)].

While agents may derive countervailing powers from several sources, (4) differences in the countervailing powers held by exclusive and independent agents can be traced primarily to differences in the agents' dependency upon the resources of their insurers [Skinner, Donnelly, and Ivancevich (1987)]. …

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