Herding cats: Competitive underwriting of catastrophe‐exposed property risks ‐ A teaching case

Risk management is an important aspect of property insurance sales, underwriting, and rating that is covered lightly in standard texts or publishers' materials. This case is based on the risk management considerations of a fictitious insurer within an often competitive and always high‐stakes industry segment—the primary insurance market for property catastrophes. The case is primarily concerned with performance management and the inherent tension that the competitive business environment can add to the management of insurance sales, underwriting, and rating risk. This case engages students in risky decision making with the option to use a simulation game that can be restricted to one round and one class period or played over several rounds in or out of class time. The game simulates randomized loss occurrences (based on pseudo‐realistic probabilities) and competitive market dynamics (also containing an element of randomness). The case requires basic knowledge of commercial property insurance rating and underwriting, catastrophe risk, insurer performance analysis (namely, loss ratios and the premium‐to‐surplus ratio), and risk preferences. Decision making under uncertainty—with an appreciation of the linkages between sales, underwriting, loss costs, and risk capital—is a key learning of the case analysis. Group decision‐making is an element of the case, and as such a secondary learning is negotiation and conflict resolution. Usage of Excel for case analysis is necessary.