A special course at the University of North Texas College of Business is giving students the opportunity to underwrite and “sell” grade insurance in their classroom.

Yu-Luen Ma and Nat Pope, professors in the risk management and insurance program, developed the award-winning "Grade Insurance” project to increase student interest in the classroom while also giving students an opportunity to actually apply insurance concepts in a meaningful way.

“As an educator, it’s often difficult to establish relevance between abstract course content and the actual lives of the students,” said Ma, who teaches the course as part of her Principles of Risk and Insurance Management class at UNT. The project emerged as an instructional tool to help make otherwise abstract insurance concepts more understandable.

Here’s how the project works:

• Students earn points for each assignment over the course of a semester.
  • The points serve a role similar to that of dollars in the real world. The better a student does, the more points s/he earns.
• These points also represent a way for students to preserve accumulated “wealth.” Students then have an option. At the end of the semester when facing one last peril, the final exam, they can use some of those points to preserve their pre-final exam grade.
• Additionally, student-teams operate as insurers and use actual student-data to “underwrite” other students and create grade-insurance protection policies.
  • These student-insurers use factors such as mid-term exam performance, GPA, major and year in school to establish each respective student’s likely “loss” on the final exam. Using that information, insurer-teams are able to decide on an appropriate “price” to charge each student for insurance protection on the final exam.
  • Determination of the appropriate premium is only one aspect of the assigned task, however. Because insurers use past-performance as a predictor of future performance, the insurer-teams must also develop policy language that ensures the prospective insured prepares for the final exam in a manner similar to earlier preparation for the mid-term exams so as to, as nearly possible, ensure similar outcomes.
  • At this stage, insurer-teams have the flexibility to mimic the real world by adding perks designed to lessen the likelihood of a loss and/or mitigate any losses that may happen. Such perks might include insurer-organized pre-final exam study sessions, “good-student discounts,” and other similar sorts of events/rewards.
• Only policies that have the prior approval of the instructor (those that are properly structured and underwritten) will be allowed to sell their insurance policies to classmates near the end of the semester at a “grade insurance fair.”
  • The fair gives individual students the option to “buy” any of the contracts presented, if they choose to do so. To make these purchases, students use points accumulated from earlier assignments in the class.
  • In this context, the instructor serves as a commissioner of insurance in determining which contracts are deemed appropriate for the marketplace.

“In the end, a successful insurance contract indemnifies a student who may have experienced unexpected adverse circumstance leading up to the exam, such as the sudden on-set of an illness, something over which the student does not have control,” said Ma. “A properly constructed policy will not artificially elevate a student’s score above its pre-final exam level or allow an insured student to escape from his or her usual exam preparation routine.”

To Ma, the real value of the project is in the team’s creation of the contract – rather than the insurance protection the policies might provide.

She added that “on its best day, a correctly structured policy will merely hold a student’s grade steady in light of an unexpectedly poor performance on the final exam. However, for the insurers, the internalization of otherwise abstract concepts that occurs when building an appropriately structure contract however, is invaluable in understanding the course material.”

Monique Bird
monique.bird@unt.edu
(940) 369-7782