The Distribution Side of Insurance Markets

This paper provides causal evidence for the impact of sales channels on insurance product adoption. Specifically, we utilize policy-level data provided by one of the largest life insurers in China, where we observe granular information on policy features and investor characteristics. We then exploit a regulatory change in the aftermath of the Global Financial Crisis that requires at least a portion of the insurance contracts sold through bank agents in each quarter to be long-term insurance products. Using a discontinuity-in-slope design, we show that bank agents falling below their target qualified ratios in the first two months of a quarter make up for the shortfall in the third month; conversely, bank agents that have exceeded their target ratios in the first two months do not alter their behavior in the last month of the quarter. This shift in qualified ratio in the last month of the quarter is entirely driven by a product-composition change – switching from short-term life insurance to long-term annuity products. We further show that this switch is not achieved by changing the relative pricing (or features) of insurance contracts or client compositions.