Title

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

Real Estate

DOI

10.2139/ssrn.1522164

Source

SMU Cox: Real Estate (Topic)

Language

English

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