Insurance Claim Operations: The Role of Economic Incentives

41 Pages Posted: 12 Dec 2009 Last revised: 25 Feb 2010

See all articles by Sreekumar R. Bhaskaran

Sreekumar R. Bhaskaran

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM)

Robert Puelz

Southern Methodist University (SMU) - Real Estate, Insurance, & Business Law Department

Date Written: September 14, 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.

Keywords: insurance, claims, economic incentives, capacity

Suggested Citation

Bhaskaran, Sreekumar R. and Puelz, Robert, Insurance Claim Operations: The Role of Economic Incentives (September 14, 2009). Available at SSRN: https://ssrn.com/abstract=1522164 or http://dx.doi.org/10.2139/ssrn.1522164

Sreekumar R. Bhaskaran (Contact Author)

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM) ( email )

Dallas, TX 75275
United States

Robert Puelz

Southern Methodist University (SMU) - Real Estate, Insurance, & Business Law Department ( email )

United States
214-768-4156 (Phone)
214-768-3713 (Fax)

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