The Insurance Market and Our Case Studies

In this chapter, the authors outline the operation of the insurance market as they model it and describe the hypothetical Ins Co. used in their examples. Ins Co. is a limited liability company that intermediates between insureds and investors. Ins Co. is owned by investors who provide risk bearing capital. In an unregulated insurance market, insured relative risk aversion interacts with investor opportunity costs of capital to determine the amount of assets supporting the risk and the split of those assets into premium and capital. The authors introduce a Simple Discrete Example and three more realistic Case Studies. The case studies include: tame case study, catastrophe and non‐catastrophe case study, and hurricane and severe storm case study. The Cases aim to help practitioners develop an intuition for how each method prices business, informing their selection of an appropriate method for an intended purpose without resorting to trial and error.