A Capacity Management Model Based on Utility Theory

The purpose of this paper is to examine the process by which underwriting decisions are generally made in insurance companies today and to propose an alternative methodology for making such decisions that will encompass concepts of capacity, survival, and stability. In insurance companies, a decision to underwrite a given risk is frequently made within a given line of business. Little or no attention is given to other lines in a multiple line insurer. In addition, it tends to be the case that the limits for what will be insured are set by top management and could be considered to fall in one of three categories; insuring only the best risks; insuring "the cream of the crap" and best risks; and insuring less desirable risks for a price.