Modeling trading games in a stochastic non-life insurance market

Leonard Mushunje; David Edmund Allen

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arXiv · 2311.10917

Modeling trading games in a stochastic non-life insurance market

Leonard Mushunje·David Edmund Allen

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Abstract

We studied the behavior and variation of utility between the two conflicting players in a closed Nash-equilibrium loop. Our modeling approach also captured the nexus between optimal premium strategizing and firm performance using the Lotka-Volterra completion model. Our model robustly modeled the two main cases, insurer-insurer and insurer-policyholder, which we accompanied by numerical examples of premium movements and their relationship to the market equilibrium point. We found that insurers with high claim exposures tend to set high premiums. The other competitors either set a competitive premium or adopt the fixed premium charge to remain in the game; otherwise, they will operate below the optimal point. We also noted an inverse link between trading premiums and claims in general insurance games due to self-interest and utility indifferences. We concluded that while an insurer aims to charge high premiums to enjoy more, policyholders are willing to avoid these charges by paying less.

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Leonard Mushunje, David Edmund Allen. 2023-11-18. Modeling trading games in a stochastic non-life insurance market. https://arxiv.org/abs/2311.10917

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