Application of Game theory in Risk & Insurance Management


My interview with Idan Cabello who leads the Safety & Risk Prevention Service at Lockton Peru. 

“The experience of a board game created in Peru”

This following report is an interview I conducted with Idan Cabello who is Risk & Safety Manager in Lockton Perú. My intent from this interview was to gain more insight on the application of Game Theory in Risk Management, as well as to define the strategies to reduce the risk and their impact on how we are benefitting from the insurance. For that reason, Idan Cabello was the perfect fit for this interview.

Q: As a Risk Manager, what clues immediately tell you about the importance of Game Theory?

Game theory provides an analytical framework for studying strategic interactions in the world of Risk & Insurance by modeling the decisions of the actors involved and evaluating how these choices impact the outcomes and expected profits of different actors (company, workers, society, insurer, insurance broker, etc.).

And since we are talking about strategies, we must mention "Nash Equilibrium," a concept developed by mathematician and economist John Nash to identify optimal strategies that maximize profits in situations of strategic interaction. It also has applications in risk and insurance management. Nash Equilibrium seeks to find the combination of players' decisions in which none of them can improve their individual position given the strategies of others. This implies that there are no incentives to change strategies.

Nash Equilibrium: How It Works in Risk & Insurance Management?

In the context of risk and insurance management, Nash Equilibrium can be used to analyze situations where different actors interact and make strategic decisions regarding risks, costs, and benefits of insurance policies. Here are some relevant applications:

1.    Determination of insurance premiums: To study how insurers set premiums for different types of coverage. Insurers will seek to establish prices that maximize their profits while attracting customers. Nash Equilibrium can help understand how premiums are set and how competitors can adjust their strategies.

2.    Negotiations of insurance contracts: When negotiating the terms of an insurance contract, the parties involved may try to maximize their own benefits and vary the deductibles. Nash Equilibrium can help identify strategies and scenarios that can lead to a mutually beneficial agreement for both parties.

3.    Zero-sum games in risk management: In some cases, risks and insurance can be considered zero-sum games, where one party's gains balance out the other party's losses. Nash Equilibrium is useful for analyzing optimal strategies in such situations, considering expected gains and losses.

Q: When did you realize that you needed the application of Game Theory to better understand the strategic decisions of the parties involved in Risk & Insurance Management?

Zero-sum games, precisely motivated me to create LOCKTON EXPLORADOR DE RIESGOS® to better understand the strategic decisions of the parties involved in Risk & Insurance Management and find balanced solutions in situations of strategic interaction regarding insurable, partially insurable, and uninsurable risks, considering how we will strategically allocate our resources:


It represents the cost that the participant is willing to bear by being partially insured or uninsured, based on their risk appetite.

In general, it refers to the losses not indemnified by the insurer, ranging from deductibles, exclusions, losses below deductibles, to rejected or prescribed claims.


It represents the cost incurred to prevent, mitigate, or manage the risk.

In LOCKTON EXPLORADOR DE RIESGOS® it is segmented into the following types:

§  People: Investment in the workforce involved in risk management departments (workplace safety, health, physical security, among others).

§  Prevention: Investment in prevention systems and programs (non-covered preventive and corrective maintenance, occupational monitoring, topical and emergency response brigades, fire prevention systems, personal protective equipment, among other security budget expenses).

§  Knowledge: Investment in risk management awareness, training, and education, including travel expenses, man-hours, and associated costs.

§  Business Intelligence: Time invested in generating organizational learning from losses.

§  Insurance broker: Fees for specialized consulting services in risk prevention, data analytics, investigation and claims adjustment, catastrophe modeling, actuarial calculations, among others.


It represents the cost of insurance premiums and other costs associated with insurance contracts.

Premiums include broker commissions, but there may also be fees or other surcharges (premium adjustments or taxes).


It represents the generated wealth and savings used to sustain the costs for the creation of captive reserves and self-insurance.

Q: What efforts does your team take to applicate Game Theory in Risk & Insurance Management?"

Game theory is indeed a fascinating subject with applications in various academic fields and real-world scenarios.

While playing with LOCKTON EXPLORADOR DE RIESGOS®, decision-makers can gain alternative perspectives on problem-solving and strategic decision-making. It allows them to consider the actions and reactions of other stakeholders involved and anticipate the outcomes of different choices.

Overall, Game theory will enable managers to make more informed decisions, design effective strategies, manage risks more effectively and helping decision-makers navigate complex situations.

About the author:

Idan leads the Safety & Risk Prevention Service at Lockton Peru (the largest privately held and independent insurance broker in the world) since Mai 2021. He has 14 years of experience in the Insurance market and industry, both locally and internationally. 

Prior to Lockton, Idan was Risk Prevention Manager at Contacto (1st local insurance broker in Peru). In Europe, he held safety engineer positions in LOUIS VUITTON (luxury) and MICHELIN (manufacturing). He also worked in GLENCORE (mining) and MAPFRE (insurance)

He earned a master’s degree in risk management (France). Idan is also a visiting professor at Universidad Nacional de Ingenieria – Perú (UNI) and mentor in StartUp-UNI (technology-based business incubator).

Phone: + 51 948 926 678

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