Title

Market reaction to regulatory action in the insurance industry : the case of contingent commission

Document Type

Journal article

Source Publication

Journal of Risk and Insurance

Publication Date

6-2010

Volume

77

Issue

2

First Page

347

Last Page

368

Publisher

American Risk and Insurance Association

Abstract

We examine the market's reaction to New York Attorney General Eliot Spitzer's civil suit against mega-broker Marsh for bid rigging and inappropriate use of contingent commissions within a generalized autoregressive conditionally heteroskedastic (GARCH) framework. Effects on the stock returns of insurance brokers and insurers are tested. The findings are: (1) GARCH effects are significant in modeling broker/insurer returns; (2) the suit generated negative effects on the brokerage industry and individual brokers, suggesting that contagion dominates competitive effects; (3) spillover effects from the brokerage sector to insurance business are significant and mostly negative, demonstrating industry integration; and (4) information-based contagion is supported, as opposed to the pure-panic contagion.

DOI

10.1111/j.1539-6975.2009.01327.x

Print ISSN

00224367

E-ISSN

15396975

Publisher Statement

Copyright © The Journal of Risk and Insurance, 2010

Full-text Version

Publisher’s Version

Recommended Citation

Cheng, J., Elyasiani, E., & Lin, T.-T. (2010). Market reaction to regulatory action in the insurance industry: The case of contingent commission. Journal of Risk and Insurance, 77(2), 347-368. doi: 10.1111/j.1539-6975.2009.01327.x