PhD ceremony Mr. J.K. Gorter: Incentives in the insurance industry

PhD ceremony: Mr. J.K. Gorter, 16.15 uur, Academiegebouw, Broerstraat 5, Groningen

Dissertation: Incentives in the insurance industry

Promotor(s): prof. K.H.W. Knot, prof. J.A. Bikker

Faculty: Economics

This thesis uses theoretical and empirical models to examine the effect of incentives in the insurance industry. In a theoretical analysis, the impact of commission bans on the quality of advice is analyzed. Because of concerns about the incentive effects of commissions, the Netherlands has recently introduced a commission ban. The analysis shows that a commission ban makes it attractive for insurers to provide direct advice to customers who disregard the incentives behind advice. Because of insurers’ ability to bypass intermediaries, a commission ban does not improve the quality of advice in the model. Policy recommendations are made to mitigate the risk of unsuitable direct advice.

In insurance, the deductible is the amount payable by a policyholder when the insured event occurs. An empirical analysis of deductible choice in Dutch basic health insurance shows that risk aversion dominates decision-making. This finding is consistent with the often-heard view that the Dutch people tend to be rather risk averse and therefore highly insured.

Through consolidation, Dutch insurers have substantially scaled up over the recent years. An investigation of consolidation in the non-life insurance sector indicates that cost-efficiency considerations have not played a leading role. Further research into the incentives behind mergers and acquisitions in the Dutch insurance industry seems therefore desirable.

A study of the investment behavior of Dutch insurers shows that risk-management incentives dominate; this is a welcome finding from a supervisory perspective. Even so, risk-taking incentives have likely increased, especially in the Dutch life insurance sector, where profitability is down.