Choosing Sides: Which Drivers Would You Insure?

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Choosing SidesWhich DriversWould You Insure?

Activity 4.2
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How to deal with risk

• Video 4 deals with making sensible day-to-day
  decisions about risk
• Student Activity 4.2 outlines a game that
  illustrates managing risk through car insurance
• Think about it Where do insurance companies get
  the money to pay for fixing the damage done in an
  auto accident?

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The Insurance Game

• This game simulates insurance decisions
• Two insurers will act like team captains in a
  neighborhood softball game
• But instead of picking softball teams, they will
  pick drivers to insure

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On the way to profit

• Team captains (insurers) will collect 1,000 from
  each driver they pick
• If the driver has an accident, determined by
  roll of the dice, insurer must pay the costs
• Team captains objective make the highest
  possible insurance profit

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Judging drivers

• Need two team captains
• What kinds of drivers are the least likely to
  require big insurance payouts?
• What kinds of drivers are most likely to require
  big insurance payouts?
• Information is on your Prospect Cards

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INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information
LocationAgeGenderMarital StatusCarUse LocationAgeGenderMarital StatusCarUse Rural22MaleSingle2003 Porsche911 GT2 coupeCommute(15 miles) Rural22MaleSingle2003 Porsche911 GT2 coupeCommute(15 miles) Rural22MaleSingle2003 Porsche911 GT2 coupeCommute(15 miles)
Here is my driving record Here is my driving record Here is my driving record
Major Traffic TicketsMinor Traffic TicketsAt-Fault AccidentsNot-At-Fault Accidents Major Traffic TicketsMinor Traffic TicketsAt-Fault AccidentsNot-At-Fault Accidents Major Traffic TicketsMinor Traffic TicketsAt-Fault AccidentsNot-At-Fault Accidents 1010 1010
1000 1000INSURANCE PREMIUM MONEY1000 1000 1000 1000INSURANCE PREMIUM MONEY1000 1000 1000 1000INSURANCE PREMIUM MONEY1000 1000

? Look at this card Is this a risky driver?
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INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information INSURANCE PROSPECT CARDName ________________________________I will pay 1000 for an auto insurance policy. Here is my information
LocationAgeGenderMarital StatusCarUse LocationAgeGenderMarital StatusCarUse Large City39FemaleMarried2002 MercurySable GS sedanCommute(10 miles) Large City39FemaleMarried2002 MercurySable GS sedanCommute(10 miles) Large City39FemaleMarried2002 MercurySable GS sedanCommute(10 miles)
Here is my driving record Here is my driving record Here is my driving record
Major Traffic TicketsMinor Traffic TicketsAt-Fault AccidentsNot-At-Fault Accidents Major Traffic TicketsMinor Traffic TicketsAt-Fault AccidentsNot-At-Fault Accidents Major Traffic TicketsMinor Traffic TicketsAt-Fault AccidentsNot-At-Fault Accidents 0100 0100
1000 1000INSURANCE PREMIUM MONEY1000 1000 1000 1000INSURANCE PREMIUM MONEY1000 1000 1000 1000INSURANCE PREMIUM MONEY1000 1000

? How about this card?
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Prospect cards

• Everyone whos not a team captain gets a Prospect
  Card
• Write your name in the blank and fold on the
  dotted line
• On the front side is information about your
  riskiness and 1000 to pay for insurance
• On the back of the card is additional information
  that the captains cant know

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Time to mingle

• Everyone stands and team captains circulate,
  looking at Prospect Cards and preparing to choose
  sides
• Team captains will want to take notes
• Remember team captains make money by insuring
  more drivers, but must also pay the costs if any
  chosen drivers have accidents

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Now, choose sides

• Team captains alternate in choosing team members
• When chosen, go stand by your team captain
• Team captains may turn down any driver they feel
  is too risky
• Choosing continues until neither captain wants to
  add anyone else

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Insurance profits

• Now each driver rolls two dice
• Look on the back of the Prospect Card to see how
  much the insurer owes for example, 0 for a
  roll of 2
• Determine profits on each driver according to the
  formula on the back of the cardPremium Loss
  Insurance Profit

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Questions for Discussion A

• Which captain picked the greater number of
  drivers?
• Is the insurer who takes in more money going to
  make more profit?

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Questions for Discussion B

• Did anyone fail to get insurance? Why?

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Questions for Discussion C

• How is this example different from getting real
  insurance?

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Questions for Discussion D

• Did any safe drivers generate a big loss because
  of a bad roll of the dice? What does this
  represent?

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Questions for Discussion E

• Why should two equally safe drivers pay different
  amounts for insurance, just because one is
  driving an old sedan and the other is driving a
  new sports car?

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Questions for Discussion F

• How could an insurer be induced to take on
  someone with a bad driving record?

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Conclusion Insurers look for good drivers

• Necessary to keep losses down
• You can keep your own insurance costs down if you
  manage risks sensibly