Accident Year Development, Bonus Banks and Insurance Incentive Compensation
15 Pages Posted: 2 Aug 2005
Date Written: January 4, 2006
Insurance claims can take years to resolve, which makes insurance performance measurement - and incentive compensation based on such measurement - challenging. The insurance industry utilizes a method of analysis called accident year analysis to manage the temporal challenge inherent in insurance claims. Despite the managerial and economic utility of this method of analysis it has generally not been applied to insurance incentive compensation programs. We explain accident year analysis, and then show how it can be merged with the bonus bank concept and the Insurance Performance Measure, which is an insurance economic profit metric, to construct an economically consistent insurance incentive compensation program.
Keywords: insurance, incentive compensation, value based management
JEL Classification: G22, G30, M21
Suggested Citation: Suggested Citation