TITLE:
Modeling Policyholder Behavior through Insurance Resonant Marts for Pricing Options and Guarantees
AUTHORS:
S. Jayaprakash, Michael Ha
KEYWORDS:
Insurance, Investment, Policyholders, Options, Guarantees, Data, Resonant
JOURNAL NAME:
World Journal of Engineering and Technology,
Vol.3 No.3C,
October
23,
2015
ABSTRACT:
Background: The 11th Annual Conference of
Asia-Pacific Risk and Insurance Association was held on July 22-25, 2007 in
Taipei, Taiwan. The first author participated in this annual conference where
he met the second author who was invited to deliver two plenary speeches on
Corporate Governance and Financial Institution Regulation [1] and Alternative
Investments for Financial Institutions [2]. The first author was then working
as consultant with i-flex solutions, a subsidiary of Oracle and the second
author was Vice President of Strategic Business Initiatives Units at ING Life Insurance
in its Taiwan operation. The two authors decided to start collaborating on a
research paper titled “Modeling Policyholder Behavior through Insurance
Resonant Marts for Pricing Options and Guarantees.” The first version of the
paper was submitted for research purposes to ING Insurance Risk Management
Global Conference 2007 [3] which was held in Beijing, China. Although it was
neither presented nor published, the working draft was constantly updated and revised.
In 2015, after eight years of continuous research collaboration, the two
authors decided to submit the final version of the paper to the 5th World
Congress on Engineering and Technology for scholarly presentation. Aim: The competition
in the insurance industry is extremely fierce. Insurance companies are under
tremendous pressure to retain and increase their customer base, to offer
services at attractive rates and provide returns competitive with mutual funds,
equities and banks, to achieve profitability across various lines of insurance,
to comply with statutory norms etc. Despite having the best of breeds, such as
accountants, actuaries [4], lawyers, underwriters, IT experts, consultants,
etc., many insurance companies face severe problems to cope with and survive
under such pressures. Insurance companies are now striving towards creating
innovative products that can match the expectation of the customers with
respect to investment returns and risk coverage at competitive rates, which is
a very challenging task. Also it is very important to measure the expectations
of the customers keeping in mind that those customers are already owners of
other financial products. Pricing always follows the expectations and without
proper data support, Model risk is imminent. Even if a product is correctly
priced, without understanding the behavior of the policyholder towards various
financial products will lead to heavy lapses [4]. The authors describe a new
framework called UIRDM Approach (Unified Insurance Resonant Data Mart) for the
insurance companies wherein this approach stresses the need to think beyond the
insurance boundaries.