Service Quality in Financial Intermediaries

We investigate the role of intermediary ownership form in providing reliable financial services to consumers. Exploiting a novel dataset of the universe of consumer complaints to state regulators, we find significant differences between stock and mutual insurers in the number of complaints made about them. Consumer complaints stem from concerns over reduced claim settlements, delayed payments, customer care, and misconduct (e.g. redlining and fraud). Following natural disasters, consumer complaints about insurers, especially stock insurers, exhibit a significant upward spike in both the state affected by the disaster and the unaffected states. Contrary to our expectations, competition among insurers appears to intensify the relatively high number of consumer complaints about stock intermediaries. We also discover evidence to suggest that consumers in states with strong regulatory oversight of intermediary solvency experience less reliable service from stock insurers. Finally, we observe that within-state increases in the stock-mutual complaint wedge are followed by substantial increases in personal bankruptcies. Overall, our analysis indicates that intermediary organizational structure is an important component of consumer financial protection.