Simulation Reflection Paper

Simulation Reflection Paper

ABC Insurance’s mission was to provide clients reliable products and services while simultaneously growing into a respectable Insurance company. Being a newly developed company, we took on a conservative approach to our operations. Our main goal was to create and maintain a strong base of low risk, loyal clients and constructed our primary strategy in such a way that would allow for such growth. Regarding our original Operations, ABC opted for higher spending in advertising and promotions. In doing this we attempted to attract a large window of customers which we would then be able to select our client base. As for underwriting, we chose a level four with the idea that a lower underwriting level would be suitable for a new insurance company in guarding against adverse selection as well as achieving and maintaining a profitable book of business. (1.3) Our high level of commission was used as a motivation tactic for our brokers to help us build our cliental base. Similar to our conservative underwriting strategy, ABC took on a less risky approach to our investments in stocks and bonds. Price?

The first round left ABC insurance feeling defeated. We were ranked in 10th place and knew a different strategy would be needed in order to stay competitive while maintaining solvency. One thing we noticed immediately was that our earned premium ($18,072,651.44) and NPW (15,510,481.42) were significantly lower than the other insurance companies. We attributed this to our high price. Since the highest ranking  (team 10) had a price point of 90$ we lowered ours from $120 to $110 in order to retain current business as well as attract more thus increasing both NPW and policies sold. ABC insurance also had a loss ratio of .72 which isn’t terrible compared t

Throughout the weeks the insurers in the red market experienced a lot of changes and shifts among the rankings. ABC insurance chose to lower our price with a final price at 95$ compared to our starting price of 120$. This attracted more clients, which resulted in a leap from 10th to 9th place. We remained at this rank throughout the simulation period. Although we stayed at 9th place we were able to sell more homeowners policies and increase our earned premium by $27,049,343.82 from period 1 to 5. We considered this a small victory for ABC insurance. Another victory came in period 5 when we earned an overall profit along with Red Owl and Cherry & White Insurance companies. In contrast, we were not very efficient in our underwriting strategies because we had an average loss ratio of .74 throughout the simulation (Refer to Table 1). The target loss ratio is .65 or less and we exceeded this target by .11. Our loss ratio played a role in our low ranking even though we were profitable in the end.

At the end of the simulation period, Team 8, JPM Insurance, was ranked number 1. Team #1 stayed at the highest rank until period 5 when they were pushed out by JPM. When comparing the two in Period 5,

Regarding downgrades, Hubbel’s Heroes were downgraded from an A to B rating  in period 1 due to the fact that their stock to surplus ratio exceeded 100%. With $19,684,709.61 in stocks and $19,294,632.99 in surplus, their ratio was 1.02 or 102%. To combat this ratio and regain an A rating, Hubbel’s Heroes decreased how much they invested into stocks, and their new ratio was approximately 49%, well within the target ratio. During period 4, Cherry& White Insurance violated the NPW to Surplus minimum standards and were downgraded to a B rating. For period 5, they regained their A rating by