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# Game mechanics - Insurance plan

17.10.2014

When you choose insurance plan for the current period, it is important to understand that the best choice can be only between two options - insurance plan 4 or 0. Insurance plans 1, 2 and 3 are less favorable than 4.

Plan 0 is selected when Incoming insurance > Insurance premium, where Insurance premium = Force Majeure - Uncovered risk.

Therefore, when you select insurance plan, you need to forecast Force Majeure (FM) in the current period. In old version of the GMC simulator in each scenario was embedded random FM sequence, so it was impossible to predict FM in current period for choosing optimal insurance plan. In new version of the GMC simulator in each scenario has embadded a constant sequence of FM and optimal insurance plan can be easyly determined if you have a full set of reports for current scenario from previous rounds.

For example, scenario 12C1 has FM sequence:

1. 1 period - \$34 483
2. 2 period - \$0
3. 3 period - \$352
4. 4 period - \$0
5. 5 period - \$810

This is basic FM sequence (mini-scenario). It means that with certain range of solutions FM will be identical for all companies. The main factor which affects on FM sequence is Management budget (MB).

Increasing MB reduces the cost of FM. For example, if you play with large MB in scenario 12C3, than insurance is not necessary.

Reducing MB immediately leads to unscheduled FM, even if it is not provided in basic sequence. If FM is already provided (as in 1 period in scenario 12C1), than effect does not stack and FM is not increased. Next periods follow basic FM sequence.

Note: all of the above is true for the current version of the simulator, but can be replaced by random FM sequence in future scenarios.

Optimal strategy is Insurance plan 4 when the Insurance payments exceed Insurance premium and plan 0 in all other cases.

Scenario 12C3 basic FM sequence and recommended Insurance plan:

1. 1 period - Plan 0 - \$0
2. 2 period - Plan 0 - \$3 472
3. 3 period - Plan 4 - \$44 448
4. 4 period - Plan 0 - \$8 618
5. 5 period - Plan 0 - \$346

In scenario 12C3, if you play with large MB, then risk of FM is almost eliminated:

1. MB 180-180-180, then FM in 3 period will be - \$35 349
2. MB 250-250-350, then FM in 3 period will be - \$10 451
3. MB 300-300-300, then FM in 3 period will be - \$10 502

You can purchase optimal Insurance plan for each scenario in our store.

Automatic selection of the optimal insurance plan is built into the Calculation model, which can also be purchased in our store.