We analyze the relationships among the three main strategic goals of every company: growth, profitability, and safety. Extant literature suggests that the relationships among these goals are two-directional and reciprocal. We therefore first-time develop a simultaneous equation model to empirically test three pairs of relationships simultaneously. We use a sample of 3,031 European insurance companies and account for firm characteristics, market conditions, and firm-year fixed effects. Our results suggest that a healthy growth has a positive impact on firm profitability; however, extremely high growth reduces the profitability. Furthermore, in line with the prospect theory, insurance companies tend to adjust their risk taking according to whether targeted profit-ability is reached. Our results emphasize existing results on underwriting discipline and that stra-tegic actions have to be coordinated to manage the trade-offs among growth, profitability, and safety.
Insurance claims fraud is counted among the major concerns in the insur- ance industry, the reason being that excess payments due to fraudulent claims ac- count for a large percentage of the total payments each year. We formulate optimiza- tion problems from the insurance company as well as the policyholder perspective based on a costly state verification approach. In this setting-while the policyholder observes his losses privately-the insurance company can decide to verify the truth- fulness of incoming claims at some cost. We show simulation results illustrating the agreement range which is characterized by all valid fraud and auditing probability combinations both stakeholders are willing to accept. Furthermore, we present the impact of different valid probability combinations on the insurance company's and the policyholder's objective quantities and analyze the sensitivity of the agreement range with respect to a relevant input parameter. This contribution summarizes the major findings of a working paper written by Müller et al. (Working Papers on Risk Management and Insurance (IVW-HSG), No. 92, 2011).
Decision delegation to professionals is supposed to lead to better decisions for consumers. But sometimes the delegation of insurance decisions is a choice without awareness for the ones who delegate. This paper analyses consumers` awareness of the individual responsibility that is involved in the delegation of financial decisions to a surrogate. Surrogates often have to deal with conflicts of interests especially related to their remuneration. It is questionable whether consumers who delegate insurance decisions to such surrogates consider themselves as well responsible for these decisions. None of the current policy proposals in the EU or Switzerland consider it necessary to raise consumers` awareness of who is responsible for a delegated insurance decision. Our results indicate that delegating financial decisions impairs consumers` perception of individual responsibility and thus may trigger less learning effects for future decisions. Our finding suggest that minimizing conflicts of interest through disclosure of price differences across distribution channels (online versus insurance advisors) can provoke a shift in channel usage as an unintended policy consequence. This research provides insights for further elaboration of the EU Insurance Distribution Directive proposal and similar regulations in Switzerland.
Current debates on future regulatory policies for the banking and insurance industry revolve around consumer protection. A crucial factor for ensuring consumer protection and well-functioning financial markets is to understand who the consumer is and to acknowledge that a certain degree of heterogeneity exists. The present study empirically derives a typology of financial vulnerability based on four important drivers of consumers' insurance decision-making: financial literacy, involvement, information behavior, and balance of responsibility. Our results provide several important insights both for public policy makers and marketers and help to estimate the efficiency of consumer protection activities from consumers' perspective. We illustrate how personal characteristics influence the magnitude of vulnerability risks consumers are exposed to. Significant differences in the levels of financial vulnerability result in three consumer groups that pose diverse demands on insurance regulation. In this regard, a commonly employed one-size-fits-all regulation is likely to be ineffective. The paper concludes with a discussion of approaches to establish consumer protection and derive implications for the involved parties.
The sharing economy has shifted the way in which goods and services are consumed - from exclusive ownership toward collective usage with economic benefits. Current literature addresses consumer motives to participate in commercial sharing of goods and services with a physical manifestation. In contrast, this study shows the relevance of intangibility for sharing services and empirically examines consumers' motives, perceptions, and experiences in the context of a new insurance model. A qualitative investigation reveals three main characteristics of intangible service sharing: financial benefits as a main motivator for participation, emerging weak social and symbolic values in a controlled environment, and a network of strangers as a crucial precondition for sharing. The work contributes to research on the sharing economy as well as to managerial considerations for the design of sharing services. In particular, managers need to balance between community development and the preservation of anonymity when promoting sharing services based on intangible elements.
In this article, we derive conditions in an imperfect market setting, under which the introduction of a self-supporting insurance guaranty fund im- proves the position of the policyholders. When a guaranty fund is advanta- geous given homogeneous firms in the market, all policyholders benefit from it to the same extent, if they have the same underlying risk preferences and are charged identical premiums. In a more realistic heterogeneous setting, the introduction of an insurance guaranty fund is in general no longer beneficial for all policyholders in the same manner. Hence, systematic wealth transfers take place between the policyholders of different insurance companies. As a possible solution, and in order to counteract this effect, we introduce a framework for utility-based fund charges.
