On the Choice of Organizational Form: Theory and Evidence from the Insurance Industry

Chapter

Abstract

Organizational forms within the insurance industry include stock companies, mutuals, reciprocals, and Lloyds. We focus on the association between the choice of organizational form and the firm’s contracting costs, arguing that different organizational forms reduce contracting costs in specific dimensions. This suggests that differing costs of controlling particular incentive conflicts among the parties of the insurance firm lead to the efficiency of alternative organizational forms across lines of insurance. We analyze the incentives of individuals performing the three major functions within the insurance firm—the manager function, the owner function, and the customer function. We review evidence from the insurance industry that directly examines this product-specialization hypothesis. We then examine evidence on corporate policy choices by the alternative organizational forms: executive compensation policy, board composition, distribution system choice, reinsurance purchases, and the use of participating policies. Finally, we review evidence of the relative efficiency of the alternative organizational forms.

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Copyright information

© Springer Science + Business media, New York 2013

Authors and Affiliations

  1. 1.University of California RiversideRiversideUSA
  2. 2.University of RochesterRochesterUSA

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