The Value of Contingent Commissions in the Property–Casualty Insurance Industry: Evidence From Stock Market Returns |
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| Authors: | Chinmoy Ghosh James I Hilliard |
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| Institution: | 1. Chinmoy Ghosh is a Professor of Finance, School of Business, University of Connecticut;2. James I. Hilliard is Assistant Professor of Risk Management and Insurance, Terry College of Business, University of Georgia. |
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| Abstract: | Insurance producer compensation has incorporated contingent commissions for decades. In 2004, the New York State Attorney General sued insurers and brokers, alleging compensation abuses and calling for elimination of some forms of contingent commissions. Daily stock price return data reveal negative announcement‐period portfolio returns for property–casualty carriers, suggesting expected negative cash flow effects. Firm‐level losses were related to intensity of contingent commission use, suggesting that the effects of such regulatory changes would be felt most by firms that relied on contingent commissions. Investors believed contingent commissions were valuable not only for producers but also for carriers. |
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