Market Growth, Barriers to Entry, and Banks as Insurance Referral Agents: Evidence from the Title Insurance Industry

Abstract

The purpose of this paper is to examine barriers to entry in an insurance market wherein banks are an integral part of the distribution system: Title insurance. We draw some broad comparisons between the distribution channels used to sell title insurance and the entry strategy used by banks entering the property and casualty insurance market. Given that the title insurance industry is characterized by two major entry barriers, controlled business arrangements and title plants, we test different industrial organization growth models with barriers to entry to determine which model best describes the title insurance industry. The empirical analysis we present suggests that the theoretical model that explains more accurately the current title insurance industry structure is the Salop circular-city model. Our contention is that if banks continue their current trend of market penetration into the property and casualty insurance markets, the results presented herein could potentially offer an insight into the future structure of that market.

Keywords: Banquassurance, Title insurance, Entry barriers, Market segmentation, Controlled business arrangements

JEL Classification: G22, L85, L13