Creating Customer Value in Participating Life Insurance

The value of a life insurance contract may differ depending on whether it is looked at from the customer's point of view or that of the insurance company. We assume that the insurer is able to replicate the life insurance contract's cash flows via assets traded on the capital market and can hence apply risk‐neutral valuation techniques. The policyholder, on the other hand, will take risk preferences and diversification opportunities into account when placing a value on that same contract. Customer value is represented by policyholder willingness to pay and depends on the contract parameters, that is, the guaranteed interest rate and the annual and terminal surplus participation rate. The aim of this article is to analyze and compare these two perspectives. In particular, we identify contract parameter combinations that—while keeping the contract value fixed for the insurer—maximize customer value. In addition, we derive explicit expressions for a selection of specific cases. Our results suggest that a customer segmentation in this sense, that is, based on the different ways customers evaluate life insurance contracts and embedded investment guarantees while ensuring fair values, is worthwhile for insurance companies as doing so can result in substantial increases in policyholder willingness to pay.     

Vorvertragliche Informations- und Aufklärungspflichten des Versicherers nach finnischem Recht

The essay deals with the regulation of the pre-contractual duty of the insurer to inform and advice the prospective policyholders according to the Finnish law. The regulation could possibly be used as a model for the amendment of the German Insurance Contract Law (VVG). The widely amended Finnish Insurance Contract Law (VSL) came into force on 1. 7. 1995. The regulation of the pre-contractual duties of the insurer was one of the most important amendments of the law. According to sec. 5 VSL, the insurer shall give the insurance applicant the information which is needed for the assessment of the insurance requirement and for the choice of the insurance before the insurance agreement is entered into. If the insurer or his representative has neglected to provide the policyholder with the necessary information concerning the insurance or has provided him with faulty or misleading information, sec. 9 VSL will apply. According to it, the insurance agreement is considered to be in force with the content which the policyholder had reason to infer on the basis of the information which he had received. The provisions are general clauses. The essay explains the details of the provisions through the cases which have been solved by the Finnish Complaints Boards.     

Die vorvertragliche Anzeigepflicht: Empfehlungen für ein europäisches Versicherungsvertragsrecht

In all European legal systems, the pre-contractual duty of disclosure is the most fundamental duty of the insured. Therefore, it is also the focal point of the debate about the harmonization of insurance contract law in Europe. As this discussion has recently gained momentum, this contribution provides a comparative overview of the rules regulating the duty of disclosure in different European countries and submits recommendations for its design in a European insurance contract law. More specifically, it is recommended that the insured should be required to disclose any fact material to the risk, that is either known to him or that he can be assumed to know. In case of breach, the insurer should either be entitled to repudiate the contract ab initio, to cancel the contract for the future or to claim damages depending on whether and to what degree the insured is at fault and depending on whether there is a causal connection between the non-disclosed fact and the formation of the contract or the occurrence of the insured event.     

临时保险制度：赔付理由、期间及其限制

我国《保险法》未规定临时保险制度,本文建议,我国的临时保险制度应当分为强制临时保险与自愿临时保险两种,在保险人预收保险费的情况下,根据履行提前、对价平衡、合理期待等理论,保险人应当对临时保险事故予以赔付,此种临时保险的期间自投保人交付保险费之时起算,于正式保险生效之时或投保人收到拒保通知书并由保险人退还保险费之时终止;...     

Grenzen der Auskunfts- und Belegpflicht in der D&O Versicherung

A large number of claims brought under German D&O insurance regard Insured vs. Insured cases, i.e. claims brought by the company against its own directors and officers (Executive Directors, Supervisory Board Members etc.). After notification of and examination by the insurer of such an insured event, the insurer will in most cases opt to grant the insured defence cover in order to fight off the claim. The insurer hereby expresses that it regards the claim of the company (= its own policyholder) against the board member (= the insured) to be without merit. This situation—where the policyholder is at the same time the damaged party—though typical under (German) D&O-policies is uncommon for liability insurance cover in general. It, thus, raises the issue as to the limits of the policyholder’s duty to disclose information. The scope of said obligation is not unlimited. It rather has to be ascertained pursuant to Sect. 31 VVG (German Insurance Contract Act), by taking into account the policyholder’s interests in commercial and industrial confidentiality and the burden of poof as provided by Sect. 93 para. 2 AktG (German Stock Companies Act). In case legal proceedings ensue between the company and the insured, and, as a consequence, the insurer exercises its obligation to conduct the case for the insured or the insurer joins the lawsuit on the side of the insured (by declaring a Third Party Notice [Streiverkündung]), the insurer clearly becomes an adversary to the company. Under such circumstances, the company is irrevocably released from its duty to disclose information.     

Der Kausalitätsgegenbeweis des Versicherungsnehmers

According to Section 28 para. 3 of the revised German VVG (Insurance Contract Law), a policyholder may prove that his breach of duty did not cause a disadvantage for the insurer by means of so-called causality counter-evidence. In contrast to the former provision, this possibility obtains even in case of an intentional breach. Therefore, in the future, causality counter-evidence will increase in importance—especially with regard to notice and information duties and duties to keep subjective risks to a minimum. However, the new provision does not impose an unfair burden on the insurer: if the causality counter-evidence is successful, the insurer must pay only the actual costs required under the contract. The insurer’s interest in prevention is protected insofar as the introduction of causality counter-evidence is generally precluded in case of malice.     

Arrow's Theorem of the Deductible with Heterogeneous Beliefs

In Arrow's classical problem of demand for insurance indemnity schedules, it is well-known that the optimal insurance indemnification for an insurance buyer—or decision maker (DM)—is a deductible contract when the insurer is a risk-neutral Expected-Utility (EU) maximizer and when the DM is a risk-averse EU maximizer. In Arrow's framework, however, both parties share the same probabilistic beliefs about the realizations of the underlying insurable loss. This article reexamines Arrow's problem in a setting where the DM and the insurer have different subjective beliefs. Under a requirement of compatibility between the insurer's and the DM's subjective beliefs, we show the existence and monotonicity of optimal indemnity schedules for the DM. The belief compatibility condition is shown to be a weakening of the assumption of a monotone likelihood ratio. In the latter case, we show that the optimal indemnity schedule is a variable deductible schedule, with a state-contingent deductible that depends on the state of the world only through the likelihood ratio. Arrow's classical result is then obtained as a special case.     

Insurance Contract Design When the Insurer Has Private Information on Loss Size

This article examines the optimal indemnity contract in an insurance market, when the insurer has private information about the size of an insurable loss. Both parties know whether or not a loss occurred, but only the insurer knows the true value of the loss and/or to what extent the losses are covered under the policy. The insured may verify the insurer's loss estimate for a fixed auditing cost. The optimal contract reimburses the auditing costs in addition to full insurance for losses less than some endogenous limit. For losses exceeding this limit, the contract pays a fixed indemnity and requires no monitoring. The optimal contract is compared with the contracts obtained in cases where it is only the insured who can observe the loss size.
     

Umwelthaftung, Umwelthaftpflichtversicherung und Umweltschutz

It is accepted in jurisprudence that liability has — as a side-effect — the aim to prevent damages, but up to now there has been no scientific proof that it works. There is no dispute that liability in tort is suitable for prevention, some approaches making cuts on the suitability of strict liability for this purpose. If liability insurance coverage is reasonable it is advantageous to the environment. German pollution liability coverage conditions at least provide adequate avenues: The insured is urged to present a risk index which is important for a risk analysis relevant to the current situation. The duty to give notice of claim and to acquire instructions from the insurer can help to minimize damage. The insurer has the right to ask the insured to improve his precautions. It would also deter environmental hazards if minor pollution which does not result unexpectedley or accidentally as well as misfeasance is excluded. The inclusion clause for such pollution and for developmental risks is not effective if the insured does maintain high safety and prevention standards. However it is counterproductive that, in the insurer’s understanding, salvage costs are not covered and at the same time they are not included in the environmental liability coverage.     

Kundenzufriedenheit als Steuerungsinstrument in einem Versicherungsunternehmen – nur Schall und Rauch oder ökonomisch sinnvoll?

Customer behavior is managed by customer satisfaction in two dimensions: Insurer can profit by a higher customer loyalty und in addition, by a sensitive price behavior of customers. The findings of moderating effects are mean considered and thus, customer satisfaction is a too strong indicator of economic success in established concepts. To mange an insurance company effective, it is a good advice to implement a model that is specific for each company. This model should respect the heterogeneous factors of influence due to customer satisfaction by multidimensional instruments. Hence, insurer may identify drivers of service and work with analysis of correlations to describe the coherence between customer satisfaction and economic success exactly. The alignment for customer satisfaction is worth for traditional insurance companies, but only, if customer satisfaction is understood as an economic valued management that is culturally based in the firm. Manager should account for this suggestion to follow a sustainable story in a saturated competitive environment.     

Optimal excess-of-loss reinsurance contract with ambiguity aversion in the principal-agent model

ABSTRACT

We discuss an optimal excess-of-loss reinsurance contract in a continuous-time principal-agent framework where the surplus of the insurer (agent/he) is described by a classical Cramér-Lundberg (C-L) model. In addition to reinsurance, the insurer and the reinsurer (principal/she) are both allowed to invest their surpluses into a financial market containing one risk-free asset (e.g. a short-rate account) and one risky asset (e.g. a market index). In this paper, the insurer and the reinsurer are ambiguity averse and have specific modeling risk aversion preferences for the insurance claims (this relates to the jump term in the stochastic models) and the financial market's risk (this encompasses the models' diffusion term). The reinsurer designs a reinsurance contract that maximizes the exponential utility of her terminal wealth under a worst-case scenario which depends on the retention level of the insurer. By employing the dynamic programming approach, we derive the optimal robust reinsurance contract, and the value functions for the reinsurer and the insurer under this contract. In order to provide a more explicit reinsurance contract and to facilitate our quantitative analysis, we discuss the case when the claims follow an exponential distribution; it is then possible to show explicitly the impact of ambiguity aversion on the optimal reinsurance.     

Der Umfang des Ruhens der Leistungspflicht des Versicherers in der privaten Krankenversicherung

In this essay the author looks at the figure of the rest of the insurer’s duty of performance in German private health insurance as it is regulated in section 193 p. 6 VVG. After describing the basic rules, she analyses which kinds of performance rest and which the insurer despite the rest of his duty has to fulfill. In this case the author, too, looks at the opinion formulated in literature that the rest means a restriction to the level of the basic tariff. She concludes that the purpose of the figure intended by the legislator, having a sanction for non-paying policyholders, is not achieved.     

Das Versicherungsvermittlerrecht nach der Reform

The EC Directive on insurance mediation has been implemented into German Law two and a half years late by the Insurance Intermediary Law Revision Act of 19^th December 2006, which has been enacted on 22^nd May 2007. On the one hand, this Act contains regulations on the professional law which are provided in the Industrial Code (Gewerbeordnung — GewO). In principle according to section 34d GewO, professional insurance intermediation is an activity requiring a licence. This licence is only granted under the condition that the applicant is able to present the conclusion of a professional indemnity insurance and a certificate that the applicant has passed an examination of knowledge and ability held by the chambers of industry and commerce (IHK). In fact, the exceptions from this principle prevail. Tied insurance agents are exempted from both conditions by act of law. Product accessory intermediaries can be exempted from the examination of knowledge and ability upon application. Employees of an insurance intermediary need to prove their knowledge and ability only to their employer. On the other hand the Insurance Intermediary Law Revision Act contains besides the regulations on professional law also new obligations of information, communication and consultation for the insurance intermediary. These obligations have been implemented into a professional law ordinance and into sections 42b und 42c Insurance Contract Act (VVG). The ordinance regulates the obligations of the insurance intermediary to provide the customer with information about his status. Sec 42b (1) VVG regulates the obligation of an insurance broker to give an advice on the basis of an analysis of a sufficiently large number of insurance contracts and insurance undertakings. Sec 42b (2) VVG regulates obligations of an insurance agent to inform the customer before the conclusion of an insurance contract about the market conditions and information basis he uses for his service, if the customer has not waived this right (sec 42b (3) VVG). Sec 42c (1) VVG further provides an obligation of the insurance intermediary to ask questions depending on the situation, an obligation to give advice depending on the situation and on the price of the product including an obligation to tell the reasons for the advice and finally an obligation of documentation. Sec 42c (2) VVG gives the consumer a right to express a waiver in writing to advice and documentation. Sec 42e VVG awards the costumer damages in the event that there has been a breach of the obligations regulated in sec 42b and 42c VVG. The Insurance Contract Law Reform Bill still has to be passed by parliament. Sec 1 of this Bill contains the new Insurance Contract Act. It is planned that this new Insurance Contract Act shall be enacted on 1^st January 2008. Sec 69 to 73 new Insurance Contract Act provide a complete revision of the law of the insurance agent’s representative authority which is now regulated in sec 43 to 48 of the old Insurance Contract Act (VVG). At the moment the law of insurance agent’s representative authority established by the courts differs extremely from the written law. Therefore the new Insurance Contract Act will bring only minor changes of the actual law. For most parts, the only aim of the reform is to adapt the law in action with the law in the book.     

Optimal insurance in the presence of reinsurance

This paper studies an optimal insurance and reinsurance design problem among three agents: policyholder, insurer, and reinsurer. We assume that the preferences of the parties are given by distortion risk measures, which are equivalent to dual utilities. By maximizing the dual utility of the insurer and jointly solving the optimal insurance and reinsurance contracts, it is found that a layering insurance is optimal, with every layer being borne by one of the three agents. We also show that reinsurance encourages more insurance, and is welfare improving for the economy. Furthermore, it is optimal for the insurer to charge the maximum acceptable insurance premium to the policyholder. This paper also considers three other variants of the optimal insurance/reinsurance models. The first two variants impose a limit on the reinsurance premium so as to prevent insurer to reinsure all its risk. An optimal solution is still layering insurance, though the insurer will have to retain higher risk. Finally, we study the effect of competition by permitting the policyholder to insure its risk with an insurer, a reinsurer, or both. The competition from the reinsurer dampens the price at which an insurer could charge to the policyholder, although the optimal indemnities remain the same as the baseline model. The reinsurer will however not trade with the policyholder in this optimal solution.     

Kundenbindung in der Versicherungswirtschaft — neo-institutionenökonomische Analyse und marketingpolitische Ansatzpunkte

In the 90s a shift from a supply-driven to a demand-driven insurance market has taken place in Germany, and insurance companies have started to create customer loyalty by orientating their marketing policies towards the creation of and maintenance of long-term relationships. However, in the case of insurance services, uncertainty and the “information” factor play an important role. Therefore this article develops the characteristics of insurance services by using the paradigm of information economics and subsequently demonstrates the importance of trust in creating and maintaining long term insurer customer collaboration. Finally the economic implications of relational effects on customers and insurers are set forth. It can be shown that customer loyalty is mainly the result of successful management of customer relation.     

论投保人缴纳保费或保险公司签发保单附条件条款的法律效力

我国保险实践中普遍将投保人缴纳保费或者保险公司签发保单作为保险合同的成立、生效或者保险责任开始的条件。但该条件不是新《保险法》规定的附条件保险合同所指的条件。同时该附条件条款赋予了保险公司对要约进行承诺时或者履行合同义务时不受时间限制的权利,该附条件条款因不具有合理性应为无效合同条款。     

Defaults and advice in self-customization procedures of insurance

The customization of insurance products is a crucial factor for the success of many insurance companies because it allows customers to tailor the insurance according to their specific needs. Customization can lead to increased customer satisfaction and loyalty. Focusing on two vertical customization methods, by-attribute and by-alternative customization, we experimentally analyze the influence of defaults. Moreover, we compare the effect of defaults to the influence of stated advice. Our results demonstrate that defaults enhance the likelihood of choosing premium insurance compared to a situation without defaults for both the by-attribute customization and the by-alternative customization. However, the customization process itself has no influence on default acceptance. If insurance companies combine a default with extensive advice (i.?e., advice that provides an explanation for why the advice is given), customers are most likely to choose the premium insurance.     

Aspekte einer Neugestaltung des Rechtes der Versicherungsvermittlung

The current fundamental reform of the German insurance law cannot and will not stop short of the law of insurance mediation. Up to now Sec. 43 to 48 Versicherungsvertragsgesetz (VVG = German Insurance Act) govern only one type of insurance intermediary known as insurance agent. The act only sets up rules to which extent the insurance agent has authority to bind the insurer. In the way the law is construed by the courts it differs in many aspects from the written law. Thus it is suggested to define the generic term ?insurance intermediary“ in the act as well as the subcategories ?insurance broker“ and ?insurance agent“, whereby the term ?insurance agent“ also includes the field staff employed by an insurer. In connection with the diffi-cult distinction between insurance brokers and insurance agents it remains questionable on which type of intermediary the rules regulating the relationship between agents and insurants and thereby protecting the potential customers should be applied accordingly. This controversial and in practice significant question should be explicitly decided by the legislator for reasons of legal certainty. In so far Sec. 43a of the Austrian Insurance Act could act as a model function. Regarding the insurance agents’ authority to receive (Empfangsvertretungsmacht des Versicherungsvertreters) for the insurer propositions exist to explicitly declare Sec. 43 No.l VVG, which grants the agent the authority to receive when accepting a contractual offer for the insurer, as mandatory. This suggestion would be in accordance with the current case law. Furthermore the wording of Sec. 43 No.l VVG should be altered so that the insurants’ pre-contractual risk-notifications, which the prevailing opinion already regards as being included, is explicitly mentioned. In principle Sec. 43 No.2 WG, which grants the agent the authority to receive notifications and representations for the duration of the insurance contract, should be declared as mandatory, too. Exempted should be the authority to receive for dispositions regarding the entitlements to benefits from (life) insurance contracts and the right to receive the insured sum. Sec. 44 WG, which strongly restricts the attribution of the agent’s knowledge to the insurer, is unconvincing, especially from a legal policy point of view. Therefore it is to be cancelled without substitution. Finally the legislator should refrain from codifying the customary liability based on the principles of reliance.     

Insurance Market Effects of Risk Management Metrics

We extend the classical analysis on optimal insurance design to the case when the insurer implements regulatory requirements (Value-at-Risk). Presumably, regulators impose some risk management requirement such as VaR to reduce the insurers’ insolvency risk, as well as to improve the insurance market stability. We show that VaR requirements may better protect the insured and improve economic efficiency, but have stringent negative effects on the insurance market. Our analysis reveals that the insured are better protected in the event of greater loss irrespective of the optimal design from either the insured or the insurer perspective. However, in the presence of the VaR requirement on the insurer, the insurer's insolvency risk might be increased and there are moral hazard issues in the insurance market because the optimal contract is discontinuous.     

The Effects of Customer Satisfaction on Company Profitability: Evidence From the Property and Casualty Insurance Industry

Prior literature presents a positive link between customer satisfaction and firms’ financial outcomes, including greater revenue, profitability, and prices. However, few studies approach the topic of customer satisfaction in the insurance industry. Using a unique data set obtained from J.D. Power, we observe customer satisfaction among U.S. auto insurers and link their customer satisfaction rating to insurer profitability metrics. Our results support the notion that greater customer satisfaction leads to reduced expenses and increased profitability. A potential explanation is that more satisfied customers are more likely to remain with an insurance company and refer others to the insurer, reducing customer acquisition expenses.