A downward trend has characterized the number of independent insurance agencies operating within the State of California in recent years (Independent Insurance Agents of America, 1992, pp. 1-2). This study examined issues associated with this decline.
The decline in the number of independent insurance agencies operating within the State of California is not necessarily an indication that the number of organizations and individuals engaged in the selling of insurance within the state has declined. While an absolute decline in the number of insurance marketers within the state could be associated with the decline in the number of independent insurance agencies, an alternative explanation involves a shift from independent agency to the direct marketing of insurance by underwriters. The significance of a decline in the number of independent insurance agencies operating within the state (one-fifth of the independent agencies have ceased to operate since the mid-1980s) is based on the contention that the presence of independent agents increases competitiveness in the insurance marketplace, thereby providing benefits to the insurance consumer (Society of Chartered Property and Casualty Underwriters, 1991, p. 11).
The decline in the number of independent insurance agencies within California is attributed to a variety of factors depending upon the source of the assessment. One contention is that the decline is a manifestation of substantial reductions (25 percent as an average) in the equity values of independent insurance agencies (Hales & Associates, 1992, pp. 3-4). A substantial decline in average equity values most certainly provides a direct explanation for the demise of many independent insurance agencies; however, the relationship between the two macro variables offers no insight into the underlying reasons for a decline in equity values. An understanding of why equity values declined is a necessary element of any investigati...