MQP 2005-Estimating the Cost of Volatility in an Assigned Risk Plan

This project studied the new assigned risk plan for Massachusetts automobile insurance. The current method is a simple lottery in which each company’s voluntary market share determines its probability of receiving the next high-risk driver. Results show that a dynamic method that adjusts assignment probabilities according to each company’s current residual market share can reduce volatility costs by 50% for all insurance companies in the state.