This study investigates what creates value for customers and how providers can improve value for their customers. A comprehensive analytical model with a four-step approach is presented and applied in the field of financial services. In a first step, the main customer value drivers are identified and five value dimensions are derived, based on qualitative interviews with customers. These results are then compared to value assumptions made by customer-contact employees, and the gaps between customer and employee perceptions are analyzed. Based on these identified gaps a multitude of implications for managing company CV at the normative, strategic and operational level of management are derived and finally implications of findings for service marketing practice and research are discussed.
In their 2001 Journal of Risk and Insurance article, Stewart C. Myers and James A. Read Jr. propose to use a specific capital allocation method for pricing insurance contracts. We show that in their model framework no capital allocation to lines of business is needed for pricing insurance contracts. In the case of having to cover frictional costs, the suggested allocation method may even lead to inappropriate insurance prices. Beside the purpose of pricing insurance contracts, capital allocation methods proposed in the literature and used in insurance practice are typically intended to help derive capital budgeting decisions in insurance companies, such as expanding or contracting lines of business. We also show that net present value analyses provide better capital budgeting decisions than capital allocation in general.
In recent years, industry loss warranties (ILWs) have become increasingly popular in the reinsurance market. The defining feature of ILW contracts is their dependence on an industry loss index. The use of an index reduces moral hazard and generally results in lower prices compared to traditional, purely indemnity-based reinsurance contracts. However, use of the index also introduces basis risk since the industry loss and the reinsured company's loss are usually not fully correlated. The aim of this paper is to simultaneously examine basis risk and pricing of an indemnity-based industry loss warranty contract, which is done by comparing actuarial and financial pricing approaches for different measures of basis risk. Our numerical results show that modification of the contract parameters to reduce basis risk can either raise or lower prices, depending on the specific parameter choice. For instance, basis risk can be reduced by decreasing the industry loss trigger, which implies higher prices, or by increasing the reinsured company attachment, thus inducing lower prices.
