Extract
How Insurance Brokers Create Value-a Functional Approach
INTRODUCTION
Recent changes in the insurance markets are indicative of future challenges brokers will face. On the one hand, inefficiencies in insurance markets were partially defused by the global emergence of modern information and communication technology, which, at least theoretically, should have led to a smaller demand for intermediation. On the other hand, other changes in the industry, such as the deregulation and liberalization of insurance markets, have resulted in greater product differentiation and correspondingly lower market transparency, which in turn increased demand for brokerage. Hence, intermediaries still play a decisive role in facilitating the exchange between consumers and providers of financial services (see Cummins and Doherty, 2006).Focusing on the relationship between brokers and insureds, we investigate the value insurance brokers can create for insureds in today's challenging environment. Following the customer-value approach, we analyze this question from a customer-oriented and functional perspective. In contrast to an institutional perspective that concentrates on the internal activities of existing institutions, such as insurance companies or brokers, the functional perspective focuses on the services provided and needs fulfilled by these institutions, for example, managing risk or transferring resources across time and space (Merton and Bodie, 1995). Thus, from the customer-value approach, the functional perspective treats the impacts of the broker's activity on the customer. According to Merton and Bodie (1995, 2004), a financial system should be analyzed in terms of a functional perspective because over long periods of time, functions have proven to be much more stable than institutions. Especially during the last few years, institutions have emerged and disappeared, evolved and changed, while functional needs have remained stable (see Allen and Santomero, 1998; Oldfield and Santomero, 1997).We ask: "What functions do or should broker...See the full content of this document
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