Insurance Rating Games: Strikes, Spares, and Bags

• Date: 01 September 2014
• Author: James R. Jones,Kevin C. Ahlgrim
• DOI: http://doi.org/10.1111/rmir.12026
• Published date: 01 September 2014

Risk Management and Insurance Review

C

Risk Management and Insurance Review, 2014, Vol.17, No. 2, 297-313

DOI: 10.1111/rmir.12026

EDUCATIONAL INSIGHTS

INSURANCE RATI NG GAMES:STRIKES,SPARE S,AND

BAGS

Kevin C. Ahlgrim

James R. Jones

ABSTRACT

Carefully designed classroom activities and games can be used to increase stu-

dent engagement, motivation, and learning. This article describes two games

that have been used with students of risk management and insurance to help

highlight the intricacies of insurance pricing. These two games, bowling insur-

ance and bags insurance, help students experience the challenging nature of

premium determination in risk transfer contracts and also connect the various

actions taken by insurers during the insurance transaction.

“The only source of knowledge is experience.”

– Albert Einstein

INTRODUCTION

In introductory risk management and insurance courses, insurance pricing is typically

presented as a static exercise, where frequency and severity of loss are explicitly pro-

vided. For example, elementary insurance mathematics is illustrated by using a term life

insurance policy where the probability of death can be extracted from a given mortality

table based on a policyholder’s age. Once the policyholder chooses the face amount of

the policy, the appropriate premium is a straightforward multiplication problem.

While life insurance pricing exercises help identify underlying principles, complications

in estimating frequency and severity are ignored. In addition, if pricing activities are

presented as an isolated mathematical exercise, students are likely to compartmentalize

individual lessons, which does not allow them to make the connection to other important

aspects of the insurance transaction, such as the application process, asymmetric infor-

mation and moral hazard, the underwriting decision, and the randomness of claims.

Without introducing uncertainty in pricing, instructors may be missing an opportunity

to synthesize various insurance functions to more accurately representthe complications

of the risk transfer mechanism.

This article was subject to double-blind peer review.

Kevin C. Ahlgrim is in the Department of Finance, Insurance and Law, Illinois State University;

e-mail: kahlgrim@ilstu.edu. James R. Jones is in the Katie School of Insurance & Financial Services,

Illinois State University; e-mail: james.jones@ilstu.edu.

297

298 RISK MANAGEMENT AND INSURANCE REVIEW

Games and simulations can be used to get students to interact more directly with the de-

cision processes made on both sides of the risk transfer transaction, from the perspective

of the insurance company and as the policyholder. This article discusses two classroom

insurance games, bowling insurance and bags insurance, which have been used with

students who are new to risk management and insurance. The exercises help illustrate

critical aspects of insurance in an interactive way using games with which students are

likely to be familiar.

This article is organized as follows. The next section provides some general discussion

on the theoretical background on experiential learning and the use of games in the

classroom. Then, the two games of bowling insurance and bags insurance are described.

Weconclude by outlining some of the potential teaching points based on our experiences

with these games.

EXPERIENTIAL LEARNING THEORY

“The student’s traditional role is that of a passive note-taker and regurgitatorof factual

information. What is urgently needed is an educational program in which students

become interested in actively knowing, rather than passively believing.”

–Volpe(1984)

The historical learning paradigm for most college campuses is didactic education, which

focuses on transmitting knowledge from instructors to students. In contrast, experiential

learning exercises are activities that are designed to put learners in a position to observe

phenomena that leads to reflection. Experiential learning is not about transferring static

facts between instructors and students, but to induce the evolution of knowledge within

learners based on interactions with outside influences. Good teachers should not only

be judged by how much knowledge they have, which is what didactic education would

presume. In addition to being content experts, good teaching means having the ability

to recognize and address individuals’ predispositions through a carefully designed

presentation and then helping learners challenge their own thoughts, which leads to

intellectual growth.

Experiential learning theory is predicated on the premise that learning is an iterative

process that is precipitated by experience (Kolb and Kolb, 2005). Engaging experiences

promote introspection and reflection, which if the experiences are precisely organized,

can guide learners toward general principles. To be most effective, classroom exercises

should expose students’ prior beliefs so that they can be reviewed, examined, and

tested. Upon engagement, students can align and compare their preconceived notions

with observations gleaned from their experiences. As a result, learners adapt and grow.

The learning process is enhanced by deeper student involvement, which can be achieved

by combining multiple processes such as thinking, speaking, observing, and acting.

The aim of experiential learning is to create meaningful exercises that have a long-

lasting impact on students that they can draw on in the future. Marzano (1991) argues

that when students get to experience and process new ideas, they begin to apply these

concepts more broadly and learn more deeply. In the sciences, classroom experiments

are the norm and most college courses in chemistry,physics, and biology have dedicated