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Intelligent Decision Support in Proportional–Stop-Loss Reinsurance Using Multiple Attribute Decision-Making (MADM)

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  • Shirley Jie Xuan Wang

    (Department of Industrial Systems Engineering and Management, Faculty of Engineering, National University of Singapore, Singapore 117576, Singapore)

  • Kim Leng Poh

    (Department of Industrial Systems Engineering and Management, Faculty of Engineering, National University of Singapore, Singapore 117576, Singapore)

Abstract

This article addresses the possibility of incorporating intelligent decision support systems into reinsurance decision-making. This involves the insurance company and the reinsurance company, and is negotiated through reinsurance intermediaries. The article proposes a decision flow to model the reinsurance design and selection process. This article focuses on adopting more than one optimality criteria under a more generic combinational design of commonly used reinsurance products, i.e., proportional reinsurance and stop-loss reinsurance. In terms of methodology, the significant contribution of the study the incorporation of the well-established decision analysis tool multiple-attribute decision-making (MADM) into the modelling of reinsurance selection. To illustrate the feasibility of incorporating intelligent decision supporting systems in the reinsurance market, the study includes a numerical case study using the simulation software @Risk in modeling insurance claims, as well as programming in MATLAB to realize MADM. A list of managerial implications could be drawn from the case study results. Most importantly, when choosing the most appropriate type of reinsurance, insurance companies should base their decisions on multiple measurements instead of single-criteria decision-making models so that their decisions may be more robust.

Suggested Citation

  • Shirley Jie Xuan Wang & Kim Leng Poh, 2017. "Intelligent Decision Support in Proportional–Stop-Loss Reinsurance Using Multiple Attribute Decision-Making (MADM)," JRFM, MDPI, vol. 10(4), pages 1-17, November.
    • Handle: RePEc:gam:jjrfmx:v:10:y:2017:i:4:p:22-:d:120649
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    References listed on IDEAS

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    1. Borch, Karl, 1960. "Reciprocal Reinsurance Treaties," ASTIN Bulletin, Cambridge University Press, vol. 1(4), pages 170-191, December.
    2. Bulut Karageyik, BaÅŸak & Dickson, David C.M., 2016. "Optimal reinsurance under multiple attribute decision making," Annals of Actuarial Science, Cambridge University Press, vol. 10(1), pages 65-86, March.
    3. Samson, Danny & Thomas, Howard, 1985. "Decision analysis models in reinsurance," European Journal of Operational Research, Elsevier, vol. 19(2), pages 201-211, February.
    4. Başak Bulut Karageyik & Şule Şahin, 2017. "Determination of the Optimal Retention Level Based on Different Measures," JRFM, MDPI, vol. 10(1), pages 1-21, January.
    5. Cai, Jun & Liu, Haiyan & Wang, Ruodu, 2017. "Pareto-optimal reinsurance arrangements under general model settings," Insurance: Mathematics and Economics, Elsevier, vol. 77(C), pages 24-37.
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    2. Roman Vavrek, 2019. "Evaluation of the Impact of Selected Weighting Methods on the Results of the TOPSIS Technique," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 18(06), pages 1821-1843, November.

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