Negotiating an Inefficient Market: An Agent-Based Model Approach to Property Insurance Claim Negotiations

Abstract

Escalating frequency and severity of natural disasters in America has necessitated the study of property insurance claim settlement processes. To date, such research has been limited by a lack of publicly available claim settlement data. This paper takes an initial step in resolving that problem by developing an agent-based model simulating negotiation between insurance companies and restoration vendors. We examine the role that macro level constraints on micro behavior play in settlement outcomes. While we find that employee performance metrics enforced by hierarchical insuring corporations influence settlement values downward, we also find that vendor flexibility mitigates such biases. Thus, evidence suggests that facilitating cooperative relationships among these competing entities is essential to minimizing valuation discrepancy and expediting the disaster recovery process.