BEST Simulation (for the Insurance Industry)

1.  Introduction

The BEST simulation game teaches you on the thinking process to run an insurance company. You have to assess the market conditions and economic trends and decide on your business strategy for the following year.

Your goal is to achieve the highest profit for each year and cumulatively. You will be ranked on a formula based on the current and cumulative profit. 

2. Insurance Business

Your result (i.e. profit) is computed as follows:

Result = Premium - Marketing - Claim - Expense

Your premium income is calculated on the number of policies sold, multiplied by the average premium per policy.

You incur marketing expense based on the number of policies sold, multiplied by the average per policy. The marketing expense comprise of commission paid to the agent and the advertising expense. This is usually between 10 to 20 percent of the premium.

You incur claim expense based on the number of policies sold, multiplied by the average per policy. The claim expense usually varies from 50 to 70 percent of the premium. The average claim per policy depends on the economic conditions, and applies to all the players to a fairly similar extent. However, a player (i.e. insurance company) that has a larger market share will have some economic of scale, resulting in a lower average cost.

You incur fixed expense based on your capacity (i.e. the number of policies), multiplied by the average per policy. The actual business that you do is limited by this capacity, and any excess business is wasted. If your actual volume of business is lower than this capacity, the excess manpower is not used, and you still incur the fixed expense.

Your goal is to plan your manpower (i.e. fixed expense) so that the actual volume of business is within 90 to 100% of the capacity.

3.  Insurance Products

The simulation game allows you to make your business plan based on four products, namely motor insurance, medical insurance, travel insurance and fire insurance.

Each product line is impacted by the economic and market conditions differently. The average claim cost may change differently for each product line. It may increase for some product lines and reduce for other lines. You have to study the economic forecast to assess the likely claim cost for the following year.

The market size may also change differently for each product line. Some product lines may have an expanding market for the following year. Other lines may have a declining market. You have to study the economic forecast to make your plan.

4.  Competitive Situation

You are competing in the market against several other players (i.e. competitors). The actual market size for each product is distributed among the players according to the following formula:

* Your price, relative to the other players
* Your marketing expense, relative to the other players
* The sensitivity of price and marketing expense for the following year

If the market is more price sensitive, a lower price can give you a larger market compared to a higher marketing budget. If the market is more service sensitive, a higher marketing budget can give you a bigger market share. You have to assess the economic trends to decide on your price and marketing strategy.

You should study your own cost structure for each product line, compared to the market (i.e. the total of all the other players). You have to find the product line where you have a larger market share (which gives you an advantage through economy of scale) or a higher margin.

5.  Economic Trends

You have to read the economic forecast for the following information for the following year:

* The likely change in market size for each product
* The likely trend in claim cost
* The sensitivity of price and marketing budget

You should also study the market condition for each product line. This will allow you to focus on the more profitable product lines.

6. Teamwork

You should divide the work among the members of your team. You can choose the following strategy:

* By functional lines, i.e. premium, marketing, claim, fixed expense
* By product lines
* By a combination of functional and product lines

Each team member should focus on his area of responsibility and contribute towards the business plan for the year. The team member should study the actual results for the year (compared to the plan) and learn the lessons from the actual market and competitive behavior.

7. Role of Game Master

The game master will discuss the following items, for each year:

* Market results for the previous year
* ranking of the various players
* How business strategy (of some players) affect the results.
* Economic forecast for the following year

This will take about 5 minutes.

8.    Tips on Playing the Game

Each team will discuss the following:

* The actual results for each product line, compared to the market
* How the economic trends are likely to impact the business
* decide on the pricing, marketing budget and capacity for each product, for the following year

You are given only five minutes to make these decisions. You have to distribute the workload, so that you can make a quick assessment.

9. Game Framework

A game will comprise of 5 to 10 virtual years, and will take a total of 1 to 2 hours.

The game can be played as follows:

* Hard copy
* screen (i.e. local area network)

In the hard copy mode, the game master prints out a hard copy report for each team. The team discusses the results and submits their business plan to be input by the Game Master's assistant.

In the screen mode, each team views their report on the screen. They enter their business plan into their computer. The results are updated into the server.

10. Learning points

The participants will learn the following:

* How to make business decisions in a competitive environment
* How to assess the market conditions and economic trends, to make their plan for the following year
* How to work with the other members of the team
* How the strategy impact on the results

Tan Kin Lian
Creator of the BEST simulation Game.
May 2007