Tool VFM Engine by Algoritmic®

For the purposes of assessing Value for Money, Algoritmic® has developed a model that calculates an indifference premium for the Insured. This model is based on a specific application of the Economic Theory of Utility, based on the original work of John von Neumann and Oskar Morgenstern in 1944 (Von Neumann J., 1944). This model is implemented according to a Risk-Based Approach, which allows for the insured’s potential risk aversion and tolerance to be appropriately accounted for, considering underlying probability distributions of the loss attributable to the insured coverages, which are asymmetric and have different kurtosis.

The idea is to use a two-way product validation test on the customer side by comparing the premium offered by the company with the indifference premium. This is the solution to the percentile isoutility equation, calibrated by taking into account the best estimate assumptions adopted to calculate the commercial premium, three different levels of risk aversion of the customer/target market, and the resulting risk resilience capacity.

The methodological framework allows us to measure the Value for Money of products that include both non-life and non-IBIP life insurance with homogeneous metrics.

The VfM ENGINE by Algoritmic® tool has been registered pursuant to articles 2 and 3 of Prime Ministerial Decree no. 244/94 with SIAE under no. D000024505.

To learn more about the methodological framework underlying this link, you can access the article published in the journal Soft Computing entitled: An economic decision-making approach to estimate the value for money of non-IBIPs insurance contracts.

Don’t hesitate to contact us to receive a presentation of our solution together with an example of a valuation for your insurance product.