Dynamic Programming, An Approach for Analysing Competition Strategies

Stochastic-dynamic programming provides a technique for forecasting limits within which the insurance business will flow by a prefixed probability. The future development depends, among numerous other things, on management strategies, especially resources, which are planned for allocation in the acquisition of new business and for competition. This technique can be used to analyse different market situations. Various competitive measures and eventual counteractions by competitors can be assumed and simulated for the purpose. In this way the consequences of different strategies can be studied in order to find the most appropriate one. Our approach is similar to the well-known business games where teams play business in a simulated market. The idea of applying dynamic programming to business games was suggested by Esa Hovinen (discussion at the Astin Colloquium in Washington in 1977).