Personal Lines Risk Management and Insurance Simulation Game

• Published date: 01 March 2013
• Author: Dana A. Kerr,Stephen M. Avila
• Date: 01 March 2013
• DOI: http://doi.org/10.1111/rmir.12008

Risk Management and Insurance Review

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Risk Management and Insurance Review, 2013, Vol.16, No. 1, 123-146

DOI: 10.1111/rmir.12008

EDUCATIONAL INSIGHTS

PERSONAL LINES RISK MANAGEMENT AND INSURANCE

SIMULATION GAME

Dana A. Kerr

Stephen M. Avila

ABSTRACT

This article examines the use of a Personal Lines Risk Management and In-

surance Simulation Game in an introductory risk management and insurance

(RMI) course. Business simulations and other case study teaching methods are

a way to increase student engagement in the classroom, which can translate

into a greater likelihood of higher learning outcomes. Because no one knows

for sure what will happen in the future, there is a fundamental trade-off that

influences all RMI decisions: incur a known cost today in order to reduce risk

in the future even though a loss may never materialize or refuse the immediate

cost that would have reduced risk even though a future loss event might still

occur. It is difficult to convince students of the consequences of such decisions

because most realize that the individual likelihood of suffering an insurable

loss is quite small. Students also fail to understand the complexity of making

these trade-off decisions multiple times in a given period for each different loss

exposure they face. A description of the purpose of the game, innovative fea-

tures, Smith Family Case Study,game specifics, and objectives and grading for

the game have been provided. This article can be used as a step-by-step guide

to implement this simulation in RMI courses at other universities to increase

student engagement and enhance student learning.

INTRODUCTION

For individuals and families, risk management and insurance (RMI) decisions play a

large part in determining financial success and financial setbacks. A risk management

program can reduce risk and make sure that appropriate risk control and risk financing

techniques are utilized to reduce the overall cost of risk. This article summarizes the

use of a personal lines risk management and insurance simulation game that provides

Dana A. Kerr is an Assistant Professorof Risk Management and Insurance, University of Southern

Maine, College of Management and Human Service, School of Business, PO Box 9300, Portland,

ME 04104-9300; phone: (207) 780-4059; e-mail: dkerr@usm.maine.edu. Stephen M. Avilais a Pro-

fessor of Risk Management and Insurance, Co-Director, Center for Actuarial Science, Insurance

and Risk Management, Department of Finance and Insurance, WB 301, Miller College of Busi-

ness, Ball State University,Muncie, IN 47306; phone: (765) 285-5220; e-mail: savila@bsu.edu. This

article was subject to double-blind peer review.

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124 RISK MANAGEMENT AND INSURANCE REVIEW

students with the opportunity to make risk management decisions given a set of prob-

abilistic scenarios with potential losses. Students witness how their decisions affect the

overall net worth of a case study family for whom they are making these decisions.

In this article, we begin by identifying the purpose of the game. This is followed by a

description of the innovative features of the game, including a detailed look at each of

the four game stages that take place through the lens of the Smith Family Case Study.

We also discuss the transferability of the game to other academic institutions, provide

feedback from students about the benefits of using the game as an instructional tool,

and offer concluding remarks. The appendices include the Smith Family Case Study,

a sample student paper produced for the game, and the game’s objectives, rules, and

grading requirements that are handed out to students at the beginning of the game.

PURPOSE OF THE GAME

Business simulations and other case study teaching methods are a tried and true way to

significantly increase student engagement in the classroom, which can translate into a

greater likelihood of higher learning outcomes. Many publishers providethe mainstream

disciplines with various simulations; however, none exist for RMI. This is unfortunate

because RMI students could benefit tremendously from such an approach given the

nature of the subject.

The subject of RMI is all about the concept of risk, which by most definitions is future

uncertainty or the possibility that a future outcome will be different than expected.

Because no one knows for sure what will happen in the future, there is a fundamental

trade-off that influences all RMI decisions: incur a known cost today in order to reduce

risk in the future even though a loss may never materialize or refuse the immediate

cost that would have reduced risk even though a future loss event might still occur. It is

difficult to convince students of the consequences of such decisions because most realize

that the individual likelihood of suffering an insurable loss is quite small. Students also

fail to understand the complexity of making these trade-off decisions multiple times in

a given period for each different loss exposure they face.

To address these pedagogical hurdles, extensive modification of an existing case study

included in a textbook used for introductory RMI courses is used and a simulation

experience has been added with the intended purpose of increasing overall student

engagement with the material.1The case study has sufficient detail to provide the

background necessary to set up the case. It was originally too narrow in the sense that it

assumed the decision to purchase insurance had already been made. The original case

study has been modified to support a simulation game format, which is very important

to create a competitive environment among the student teams as a way of sparking

engagement. The game process is presented in the next section.

GENERAL DESCRIPTION OF THE GAME PROCESS

The simulation game puts students in the shoes of a risk management professional

consulting with a family about the risks they face and the tools they should use to

1See Baranoff, E., 2004, Risk Management and Insurance (New York:John Wiley & Sons). Permission

for using the relatively few details left from the original case for this simulation game was

obtained from the publisher.