An Insurance Pricing Game

• Published date: 01 March 2012
• DOI: http://doi.org/10.1111/j.1540-6296.2011.01213.x
• Date: 01 March 2012
• Author: Joseph D. Haley

Risk Management and Insurance Review

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Risk Management and Insurance Review, 2012, Vol.15, No. 1, 117-128

DOI: 10.1111/j.1540-6296.2011.01213.x

EDUCATIONAL INSIGHTS

ANINSURANCE PRICING GAME

Joseph D. Haley

ABSTRACT

Understanding data and statistical distributions is a fundamental part of an

undergraduate business student’s education. The insurance pricing game pre-

sented here gives the students a unique way to apply statistical analysis in

the classroom. The game requires decision making about risk with limited in-

formation. Specifically, the students must decide what “premium” to charge

the members of a hypothetical risk pool. The game provides teachers with a

discussion platform for numerous aspects of insurer risk pooling.

INTRODUCTION

All undergraduate business students take at least one basic statistics class. They learn, for

example, about mean, standard deviation, normal distribution, sampling distributions,

and z-values. Presumably, these students are later asked to apply the statistical concepts

in other courses. The insurance game presented here is an innovative insurance applica-

tion of some basic statistical concepts whereby the students need to make risk decisions

based on limited information. Specifically, the students attempt to determine the loss

distribution of a group of insureds as a loss history develops in a simulated year-by-year

fashion. The success of their analysis is measured by how accurately they can choose

a premium to match losses, subject to considerations for avoiding bankruptcy. Student

grades, to a small degree, are affected by the results of the game.

This game is most ideally suited to an introductory risk management and insur-

ance class, though it can probably be incorporated into almost any undergraduate

insurance class that emphasizes the mechanics of risk pooling. I use it in my introductory

insurance classes and my more advanced property–liability class.

THE IMPORTANCE OF CLASSROOM ACTIVITIES

Finding multiple ways to engage students is an important part of teaching. A diversity

of efforts creates a stimulating learning atmosphere. Baranoff(2001) describes a risk balls

game where students are burdened with assorted risks and are then allowed to transfer

the risks to other students acting as insurers. Russell (2000) reports on a simulation ex-

ercise in which groups of students are designated as consumers or insurers. The student

Joseph D. Haley is a Professor of Risk Management & Insurance, Heberger Business School,

St. Cloud State University,St. Cloud, MN; phone: 320-308-3243; e-mail: jhaley@stcloudstate.edu.

This article was subject to double-blind peer review.

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