Title: Lowering Acquisition Costs by a Commission Cap? Evidence from the German Private Health Insurance Market
Abstract: Various regulatory approaches, like the Medical Loss Ratio in US health insurance, are aimed at reducing cost and ensuring a minimum value of insurance for consumers. In the German market for private substitutive health insurance, a commission cap and a minimum cancellation liability period for independent advisers were introduced in 2012 in order to suppress acquisition costs. Despite the initial consensus that the commission cap effectively led to lower relative acquisition costs, we provide evidence that the reform was only partly effective, as it led to a decrease in new business in the substitutive market, while total acquisition costs remained stable over time. Our findings confirm that cost regulation is tricky and can be easily circumvented. However, our analysis indicates that a minimum cancellation liability is able to improve advice quality by reducing early cancellations.
About This Series: The Robert A. Hedges Research Seminar Series is hosted by the Department of Risk, Insurance, and Healthcare Management in the Fox School of Business. The seminar series comprises invited lectures from academics experts around the world who present research in insurance, risk management, and actuarial science