Simulation of Financial and Insurance Administration SOFIA

Context

The insurance industry is changing fast due to globalisation, (de)regulation, financial innovations, technological innovations, etc. This changing environment is translated into a move away from traditional and fragmented or product specialized financial institutions into horizontally diversified organisations that focus on new markets and/or new business lines.

The most tacit consequence of these changes is the establishment of financial conglomerates, which constantly creates new challenges as well for those employed into this industry as for supervisory authorities.

Added Value for Participants

The Simulation of Financial and Insurance Administration SOFIA© is developed to provide participants, in an interactive way, with new insights in the complexity of managing an insurance company.

SOFIA gives participants the opportunity to experience the merits of strategic and analytical thinking as a continuous process. Effective strategy formulation and implementation are an essential ingredient of success, as well as goal-oriented analytical effort and teamwork. The former management of the company has taken care of it for the 50 preceding years. Now it is the task of the new management team to analyse the current situation and future prospects for the company and the industry. After that, a successful strategy can be formulated.

SOFIA helps participants to identify and compare key elements in the decision-making process and experience the risk-return relationships that drive the decision-making process. In the simulation, the results of each round are determined by the decisions made. The team needs to make decisions under pressure, under uncertainty in the environment, and based on their knowledge of insurance. By doing so, they will experience that this is not easy due to the differences between theory and practice. Participants will experience how it feels to manage each constituent part of an insurance company. They will get a holistic view of the company and they will see how their decision-making affects the share price.

Insurance Management Programme

SOFIA has been designed in such a way that the main challenges for the participants are quite similar to the challenges for insurance managers. Participants need to make a number of interdependent decisions on marketing and sales, financial and investment, claims management and other organisational issues in a dynamic competitive environment. SOFIA highlights important issues in the formulation of strategic options. Because each phase focuses on different aspects of the management it is possible to stop the simulation after the first phase.

Two to eight teams (whereby each team consists of two to five participants) compete in the insurance market. Each team manages an insurance company and tries to create value for all its different stakeholders. Furthermore, as in most business simulations, the dynamic team interactions and how to deal with it are a learning goal itself.

The first part of the simulation provides participants with insights into an insurance company. In order to do so the management team has to decide on several issues: sales and marketing, product portfolio, distribution, claims and benefits, investments, personnel and organization, finance and accounting, reinsurance and strategy.

Decisions have to be made concerning:

Product portfolio composition	Participants decide whether they will be a multi-line participant or a specialist. This gives them more insights in the differences between life and non-life products in terms of pricing, contract duration, risk level for the company, claim acceptance and implications for the asset management function.
Marketing strategy	How does the company profile itself to the customer? Will it be a cost leader or will it opt for a differentiation strategy? What are the main aspects that it will use in its marketing strategy? Managing the brand, however, is equally important.
Distribution strategy	The management team has to decide about which distribution channels it will use. The insurance company can work via brokers, agents and direct writers. In stage 2, you can also add bank branches in your distribution mix. What are the strengths and weaknesses of each particular distribution channel? Which distribution strategy fits best with the company’s overall strategy?
Claims and benefits	The claims management function is very important in an insurance organisation. It can be an important marketing tool and can have significant implications on the profitability of the organisation.
Investment/Asset management	Given the reversed production cycle in insurance, it is really important for an insurance company to manage its assets appropriately. This means realising sufficient investment income without taking too much risk. The management team has to decide about the optimal investment portfolio and has to determine how to invest in the different asset categories (T-bills, securities, stocks and real estate).
Reinsurance	In order to manage claims more efficiently, management also has to define and apply a reinsurance strategy. The management team can use different reinsurance products for different types of business lines.
Back-office	Hereby, the management not only needs to consider the number of people that handle the policies, but also their workload (inclusive the learning effect of new employed people), their training possibilities, their wages and whether it wouldn’t be better to invest in a new, more friendly, IT supportive environment.
Finance and accounting	Managing an insurance organisation is about managing profitability and solvency. Financial management is therefore extremely important. Does the company have sufficient capital? What does the company do with its profits? How does it treat its shareholders