Competitive Insurance Research Articles

New Ukrainian Insurance System

The article discusses the new insurance system in Ukraine introduced by the Law of Ukraine On Insurance dated 18 November 2021, which became effective on 19 December 2021 and will come into full effect on 1 January 2024. In 2020 the National Bank of Ukraine became the new regulator of the Ukrainian insurance market and initiated the development of a new regulatory and oversight model in the insurance sector. The article discusses the problems related to the Ukrainian insurance market which are expected to be solved by the new regulation and oversight model. The author presents the most important new solutions introduced by the Law, such as requirements relaed to entering the insurance market, ownership structure, capital , the protection of consumer rights and exiting the insurance market. The article also shows a brief comparative analysis of the relevant provisions of the Law and Directive 2009/138/EC. The author concludes that the new regulations are comprehensive and consumer-oriented, which will help to solve existing problems and build a solvent and competitive insurance market.

Do insurers respond to active purchasing? Evidence from the Massachusetts health insurance exchange

AbstractHealth insurance markets face continued challenges with high premiums and limited insurer competition. We describe a unique set of “active purchasing” policies used by Massachusetts' pioneer health insurance exchange to shape the rules of competition and reward lower‐price insurers with additional customers. We provide evidence that these policies significantly influenced insurer pricing. Between 2010 and 2013, over 80% of insurer prices were set exactly at or within 1% of pricing thresholds created by active purchasing policies. A key “limited choice” policy was associated with a 16%–20% reduction in average insurance prices relative to comparison markets in 2012–2014. Insurers achieved these price cuts partly through cost reductions via narrower provider networks and partly through reduced profit margins.

Payer-Negotiated Prices for Cancer Services Across National Cancer Institute-Designated Cancer Centers

INTRODUCTION: To promote price transparency and encourage insurer competition, recently implemented federal regulations require hospitals to publish payer-specific negotiated prices for all services. We sought to understand availability of payer-negotiated prices as well as how they vary within and across centers performing cancer operation. METHODS: We reviewed National Cancer Institute (NCI)-Designated Cancer Center (n = 64) websites to extract payer-negotiated prices and discounted cash prices for 131 services related to diagnosis and management of melanoma, colon, lung, pancreas, prostate, and rectal cancer. For each condition, we compared the highest and lowest payer-negotiated price within each center. We also compared centers with the highest median and lowest median payer-negotiated price for each condition. RESULTS: Of the 64 NCI-designated Cancer Centers, 34 (53.1%) had publicly available price data. Among these, there was wide variation in prices within and across centers and services. For example, median price for a pneumonectomy at 1 center demonstrated little variability ($7,423 to $9,000, median ratio 1.21) while another center for superficial axillary lymph node dissection demonstrated wide variation ($377 to $18,427, median ratio 31.7). Price variation also differed widely across different conditions with transanal excision demonstrating limited variability in median price across centers ($2,500.02 to $4,969.00, median ratio 1.99), while MLH1 gene analysis demonstrated wide variability in median price across centers ($2.80 to $2,631, median ratio 939.8) (Figure).FigureCONCLUSION: Adherence to federal regulations mandating hospital price transparency continues to be low. Significant variation in payer-negotiated prices exists both within and across hospitals for services related to diagnosis and treatment of the most common cancers.

Analysis Of Demand For Health Insurance Business During The Indonesian Covid Pandemic

The implementation of BPJS in Indonesia nine years ago, seems to have had an impact on a number of insurance companies also demand of the health insurance during pandemic in Indonesia. This mandatory program from the government inevitably affects the competitive landscape of the insurance industry in Indonesia, especially private insurance companies that serve health and other private insurance companies. Healthcare insurance competition is expected to become a mechanism capable of creating efficiency that functions as a tool to protect consumers and business actors. The Indonesia government policy is one of the state-owned insurance companies, PT. Askes (Persero) changed its name to BPJS which applies to all people. Currently PT. Askes (Persero) changed to BPJS which serves all Indonesian citizens without any difference. This study uses a qualitative method, aiming to analyze the development of demand trend in health insurance in Indonesia, its developments and implications, especially in the world of healthcare insurance business in Indonesia. From demand of health insurance business and competition, it is hoped that efficient, effective, and high-quality production will be achieved. The goal of this research is to highlight what are the things that benefit consumers because they are given the opportunity to have a choice of quality products and can buy at competitive prices which tend to be relatively cheap. This study also aims to analyze the demand for health insurance included: utilization of inpatient, utilization of health insurance and comparison literature review of inpatient and outpatient costs based on the type of social health insurance in Indonesia, public and private health facilities.

E-Commerce Revolution in the Insurance Industry Product Development

The insurance industry appears to be lagging in the rapid evolution of financial services and e-commerce. However, insurers are still hesitant to approve policies online and are adding these services slowly to their sites for product development. This paper discusses some of the fundamental issues surrounding the use of alternative Internet business models in insurance, benefits, barriers as well as the success factors. An Extensive experience within the insurance industry and ability to deliver cost effective e-commerce solutions which suit our needs, are involved in making the Insurance Products suitable for E-commerce. Above all a Bird's eye description can help us in competing in the increasingly competitive insurance sector.

Comparative Analysis of Consumer Satisfaction Towards Life Insurance Companies in India: An Actionable Insight for Indian BFSI Industry

In the highly competitive life insurance sector consumer satisfaction has become a crucial aspect of hostile marketing. In order to survive in the modern era, delivering a high quality services has become need of an hour. As LIC, ICICI Prudential Life, HDFC Life, and SBI Life are dominating the life insurance sector with a combined market share of around 80% among all 24 life insurance companies. These four companies are chosen under the study according to their market shares. Data has been collected from 600 consumers (150 from each company) from dist. Ludhiana and dist. Sangrur of Punjab. In context of satisfaction, the consumers of LIC were found to be more satisfied among all the companies in terms of clarity of terms and conditions followed by ICICI Prudential Life, HDFC Life, and SBI Life. The consumers of all the companies are equally satisfied in terms of availability of easy premium modes. As far as print quality of the policy document is concerned, the consumers of ICIC Prudential Life were found to be most satisfied. It was found that the agents of HDFC Life are doing the best job among all the chosen companies in terms of consumer dealings. ICICI Prudential Life is providing the best office facilities and timely reminders to the consumers.

Customer price sensitivities in competitive insurance markets

Insurers are increasingly adopting more demand-based strategies to incorporate the indirect effect of premium changes on their policyholders’ willingness to stay. However, since in practice both insurers’ renewal premia and customers’ responses to these premia typically depend on the customer’s level of risk, it remains challenging in these strategies to determine how to properly control for this confounding. We therefore consider a causal inference approach in this paper to account for customers’ price sensitivity and to deduce optimal, multi-period profit maximizing premium renewal offers. More specifically, we extend the discrete treatment framework of Guelman and Guillén (2014) by Extreme Gradient Boosting, or XGBoost, and by multiple imputation to better account for the uncertainty in the counterfactual responses. We additionally introduce the continuous treatment framework with XGBoost to the insurance literature to allow identification of the exact optimal renewal offers and account for any competition in the market by including competitor offers. The application of the two treatment frameworks to a Dutch automobile insurance portfolio suggests that a policy’s competitiveness in the market is crucial for a customer’s price sensitivity and that XGBoost is more appropriate to describe this than the traditional logistic regression. Moreover, an efficient frontier of both frameworks indicates that substantially more profit can be gained on the portfolio than realized, also already with less churn and in particular if we allow for continuous rate changes. A multi-period renewal optimization confirms these findings and demonstrates that the competitiveness enables temporal feedback of previous rate changes on future demand.

Money-Back Guarantees and Service Quality: The Marketing of In Vitro Fertilization Services

Marketing practices like money-back guarantees (MBGs) are prevalent in many expert-service markets but are often decried as marketing gimmicks that take advantage of vulnerable and poorly informed consumers. In this research, conducted in the market for in vitro fertilization services, the authors empirically assess differences in quality of care between clinics that offer MBG programs and those that don't, to investigate whether MBG programs can serve a purpose consistent with signaling and insurance theories. The analysis is conducted on a unique longitudinal data set that includes information on clinic-level treatment, outcome statistics, clinic characteristics, and marketing practices for fertility clinics in the United States, state-level insurance mandates, competition environments, and demographic and geographic characteristics. Using an instrumental variable approach to account for the endogeneity of MBG decisions made by fertility clinics, the authors find that MBG clinics, on average, offer better treatment outcomes in terms of success rates while undertaking lower risks. The results are consistent with signaling theory predictions that market-based programs like MBGs can serve as signals of unobservable clinic quality despite the incentives for clinics to engage in opportunistic behaviors.

Optimal reinsurance pricing with ambiguity aversion and relative performance concerns in the principal-agent model

This paper first studies the optimal reinsurance problems for two competitive insurers and then studies the optimal reinsurance premium pricing problem for their common reinsurer by using the dynamic programming technique. The two insurers are subject to common insurance systematic risk. Each purchases proportional or excess-of-loss reinsurance for risk control. They aim to maximize the expected utilities of their relative terminal wealth. With the insurers' optimal reinsurance strategies, the reinsurer decides the reinsurance premiums for each insurer, also aiming to maximize the expected utility of her terminal wealth. Thus, the optimal reinsurance pricing problem is formulated as a Stackelberg game between two competitive insurers and a reinsurer, where the reinsurer is the leader, and the insurers are followers. Besides, all three players take model ambiguity into account. We characterize the optimal strategies for the insurers and the reinsurer and provide some numerical examples to show the impact of competition and model ambiguity on the pricing of reinsurance contracts.

Robin hood insurance broking: driving growth with differentiation

Learning outcomes Students will have the opportunity to learn about differentiation strategy, business plans, strengths, weaknesses, opportunities and threats analysis. The primary objective is to allow students to evaluate Abhishek Singh’s decisions. After working through the case and assignment questions, students will be able to: understand the competitive landscapes in the Indian insurance broking market. Differentiate between selling and marketing. Understand the importance and application of differentiation strategy in the Indian insurance broking market. Emphasize the importance of value proposition in developing a competitive advantage for insurance broking organization. Critically analyze the internal strength and weaknesses of an insurance broking company. Case overview/synopsis RHIBPL, one of India’s largest insurance broking companies, operating for more than 12 years and has had a strong presence in eight major cities of India. RHIBPL had been known for life insurance, non-life insurance like cars, two-wheelers, Mediclaim and health. RHIBPL’s unique selling proposition was the best fit for each product and service after understanding the customer’s need. On October 16, 2020, Abhishek Singh, CDO at RHIBPL, was preparing for an upcoming management meeting on the company’s vision “to be the largest insurance provider in the country and to reach US$ 140 million by 2025,” which was communicated by the Ajay Bansal, founder and chief executive officer of RHIBPL. Singh had to prepare an action plan to achieve the RHIBPL’s vision. He had to develop and implement a differentiation strategy to achieve the RHIBPL’s vision from the available resources. How can he create a competitive advantage for RHIBPL in the highly competitive insurance broking market? Complexity academic level The case delineates the challenges facing an insurance broker company to achieve its new corporate vision. This case can be discussed in undergraduate and postgraduate courses (at the introductory level) in the business management discipline to understand the importance and application of differentiation strategy and competitive advantage. This case can also be significant for insurance-related courses for postgraduates and executives working in the insurance industry. The case can be useful for the courses on services marketing, strategic management, strategic marketing management and marketing management. Supplementary materials Teaching notes are available for educators only. Subject code CSS 8: Marketing.

Asymmetric information and insurance cycles

AbstractThis paper extends the theoretical literature on underwriting cycles by assuming insurers have heterogeneous exposure to a catastrophe. Distinct from the existing literature on insurance cycles, we model optimal contracting by competitive insurers. Since losses take time to pay out, and insurers are better informed about their catastrophe exposure than external investors, catastrophes compromise the capital‐raising ability of insurers by increasing asymmetric information. Capital is restricted following a catastrophe because investors do not know the catastrophe exposure of each insurer, not because of explicit costs of raising capital. Thus, insurers decide to hold less capital following a catastrophe, giving rise to the insurance cycle.

Risk Self-Selection and the Concept of Equilibrium in a Competitive Insurance Market

The purpose of this paper is an analysis of the presence of self-selection mechanisms on the market that could bring the market closer to the separating equilibrium state, in line with the Rothschild–Stiglitz equilibrium model and its subsequent modifications. An example is the Polish market of compulsory third-party liability insurance of vehicle owners. This paper describes this market in terms of both its structure and its financial results. The main focus is on describing the assumptions of the Rothschild–Stiglitz model for markets operating under the conditions of information asymmetry and based on the self-selection mechanism, allowing for an unequivocal determination of the insured’s profile without the need to actually observe the insured’s behaviour. Finally, we show that thanks to the self-selection induced by the possibility of driving behaviour monitoring, the industry can minimise the negative effect information asymmetry has on the motor insurance market. This can be achieved, for example, by observing the choices made by the insured after being offered a new voluntary contract with a premium based on telematics data. Our analysis was carried out with the use of three selected characteristics that can determine the insured’s risk profile, i.e., distance covered, self-assessment, and insurance premium paid; the significance of the latter—although it may be intuitive—is questionable at commonly accepted significance levels. Therefore, the main result is that although there is some evidence on the disputed matter, there can be no definitive conclusion—especially in terms of risk as measured by insurance premium.

How Price Regulation Is Needed To Advance Market Competition.

In US health policy, conventional wisdom holds that market competition and price regulation are mutually exclusive strategies to stem high and rising provider prices. This incorrect assumption centers on the belief that robust competition in US commercial health insurance markets must include provider price competition. Other developed countries, however, commonly implement price regulation to support competition over important care delivery components other than prices, including quality of care and patient choice, and to provide stronger incentives for providers to improve operating efficiency. Conventional US policy wisdom also holds that price regulation inevitably will fail because of excessive complexity or succumb to the interests of regulated entities. This analysis challenges conventional wisdom by urging policy makers to consider regulations that limit out-of-network provider prices and establish flexible hospital budgets. Each of these proposals would require less administrative complexity and burden than other proposed approaches. We conclude that it is time to move discussions from whether to regulate hospital prices to determining how best to do so.

Competitive Insurance Pricing Strategies for Multiple Lines of Business: A Game Theoretic Approach

Competitive Insurance Pricing Strategies for Multiple Lines of Business: A Game Theoretic Approach

Methodical approaches to optimizing the insurance company portfolio of services

The article is devoted to the generalization of methodological approaches to the optimization of the insurance company portfolio of services and the development of an algorithm for optimizing the insurance company's services portfolio. Insurance market of Ukraine is in a state of transformation, which is associated with changes in the institutional conditions of insurance, changes in the priorities of policyholders, macroeconomic instability, the spread of the COVID-19 pandemic. Institutional changes in the insurance market of Ukraine and macroeconomic instability have led to the "cleansing" of the insurance market and the exit of insurance companies that do not ensure transparency, solvency and efficiency. In the three quarters of 2021, 41 insurance companies left the Ukrainian insurance market, ie one in five insurance companies ceased operations. The relevance of optimizing the insurance company's portfolio of services is proved, which is due to the need for insurance companies to review their own portfolios to ensure financial stability, solvency and efficiency in a competitive insurance market of Ukraine. It is proposed to consider the optimization of the insurance company's portfolio of services as a set of interconnected and consecutive stages that are consistent and logical, as well as adaptive to modern realities of the insurance market of Ukraine, aimed at achieving profitability and maximizing the value of the insurance company. The first five stages of optimizing the insurance company's portfolio should be considered the most important, as it provides for determining the methodological principles of optimizing the insurance portfolio. Substantiation of the type of insurance company's portfolio and justification of the list of criteria for optimizing the insurance company's portfolio are interrelated stages that determine the individual basic parameters of the optimized portfolio for the insurance company depending on the chosen type of portfolio. Calculations for the optimization of the insurance company's portfolio of services involve the implementation of economic and mathematical modeling of the structure of the insurance services portfolio and the definition of its targets. Following a certain period of time, the insurance company must assess the effectiveness of achieving the optimal portfolio of services of the insurance company and the impact on key performance indicators of the insurance company, including net financial result and value of the insurance company, the presence of deviations of actual and optimal indicators. Keywords: insurance, insurance company, insurance company portfolio, optimization, Markovic model, insurance market of Ukraine.

Equilibrium in Competitive Insurance Markets with Medical Tourism

In recent years, the rising healthcare costs in the United States have led many citizens to travel outside the country for medical care. Although such practice, commonly known as ‘medical tourism’, has become more and more popular, many insurance companies hesitate to incorporate a medical tourism option into insurance contracts. In this article, we wish to understand the theoretical rationale of that by designing an insurance contract in an environment where medical tourism is available. One crucial characteristic that influences consumers’ decision on whether to choose medical tourism is their tolerance levels associated with unexpected costs when travelling abroad for healthcare. In this article, we wish to investigate how the individuals with preference heterogeneity would self-select between the options of domestic treatment and treatment abroad offered in the contract. The results suggest that when the healthcare costs from both the treatment abroad and the domestic treatment are high and/or there is a higher chance of needing an elective treatment for the individual, insurance companies will more likely incorporate medical tourism in the contract. JEL Classification: C73, I13, D82, D86

A joint strategy based on ordering and insurance for mitigating the effects of supply chain disruption on risk-averse firms

We examine the mitigation strategy for a risk-averse firm facing supply chain disruption threat under an all-or-nothing assumption. The firm orders from an upstream supplier to satisfy downstream stochastic demand, and mitigates the damage it suffers from disruption by adjusting its ordering decision and buying business interruption (BI) insurance. We explore the firm's joint ordering and insurance decisions in perfectly competitive and imperfectly competitive insurance markets, and demonstrate that BI insurance effectively reduces the losses caused by supply chain disruption and eliminates the effect of the firm's risk-averse attitude. In a perfectly competitive insurance market, the firm always purchases full insurance coverage; in an imperfectly competitive insurance market, the firm's ordering and insurance decisions are always complementary. We then extend our model to accommodate the firm's overconfidence behavior and partial damage, and conclude that overconfidence about risk probability has a negative effect on the firm's utility and our main conclusions still hold in situations of partial damage.

On a Markovian Game Model for Competitive Insurance Pricing

In this paper, we extend the non-cooperative one-period game of Dutang et al. (Journal of Operational Research 231(3):702–711, 2013) to model a non-life insurance market over several periods by considering the repeated (one-period) game. Using Markov chain methodology, we derive general properties of insurer portfolio sizes given a price vector. In the case of a regulated market (identical premium), we are able to obtain convergence measures of long run market shares. We also investigate the consequences of the deviation of one player from this regulated market. Finally, we provide some insights of long-term patterns of the repeated game as well as numerical illustrations of leadership and ruin probabilities.

A supervised clustering MCMC methodology for large categorical feature spaces.

There is a well-established tradition within the statistics literature that explores different techniques for reducing the dimensionality of large feature spaces. The problem is central to machine learning and it has been largely explored under the unsupervised learning paradigm. We introduce a supervised clustering methodology that capitalizes on a Metropolis Hastings algorithm to optimize the partition structure of a large categorical feature space tailored towards minimizing the test error of a learning algorithm. This is a general methodology that can be applied to any supervised learning problem with a large categorical feature space. We show the benefits of the algorithm by applying this methodology to the problem of risk adjustment in competitive health insurance markets. We use a large claims data set that records ICD-10 codes, a large categorical feature space. We aim at improving risk adjustment by clustering diagnostic codes into risk groups suitable for health expenditure prediction. We test the performance of our methodology against common alternatives using panel data from a representative sample of twenty three million citizens in Colombian Healthcare System. Our results outperform common alternatives and suggest that it has potential to improve risk adjustment.

Capital, aggregate risk, insurance prices and regulation

We develop a general equilibrium model of competitive insurance and equity capital markets to show how aggregate asset and insurance liability risks affect insurance prices and regulation. In the unique equilibrium of the benchmark unregulated economy, insurers raise external capital solely by selling insurance and no outside equity. We derive the Pareto efficient allocation and implement it via multiple regulatory policies that combine risk-based capital requirements, asset risk constraints, reinsurance and bailouts. An efficient regulatory policy with a lower capital requirement must be accompanied by a more stringent asset risk constraint, and one with a capital requirement that is more sensitive to insurer assets should be less sensitive to insurer liabilities. When the aggregate asset and liability risks are below respective thresholds, insurees are fully insured in the optimally regulated economy, and the set of efficient regulatory policies does not vary with aggregate risk. Outside this region, however, insurees must bear aggregate risk with capital and asset risk constraints becoming tighter as either the aggregate asset or liability risk increases. The aggregate asset and liability risks could have opposing effects on the insurance price and insurer size in the regulated economy. Our results highlight the importance of tailoring regulatory policies to aggregate risk levels, and disentangling the impacts of aggregate asset and liability risks in analyses of how regulation influences insurance prices and insurer capitalization.