Insurance Claim Operations: The Role of Economic Incentives
Publication Date
12-12-2009
Abstract
We develop a theory of insurance claim settlement whose structure embodies an insurer’s capacity decision and negotiation between the insurer and claimant in an asymmetrically informed environment. We offer a solution to an insurer’s choice of upfront claim settlement amount under a plausible set of assumptions. Implications from theory are tested with a large sample of liability insurance claims collected over two years in the state of Texas and we find that insurer’s deployment of more capacity to handle a claim and longer settlement times occur for claims with more uncertainty. The empirical results also reveal factors relevant to insurer’s operational choices. Descriptive features of a claim, the age of the claimant and attorney representation on the plaintiff’s side are important determinants of the final settlement amount.
Document Type
Article
Keywords
insurance, claims, economic incentives, capacity
Disciplines
Business Administration, Management, and Operations
DOI
10.2139/ssrn.1522164
Source
SMU Cox: Real Estate (Topic)
Language
English
