View source for Definition:Feasibility study

📊 '''Feasibility study''' in the insurance context is a structured analysis conducted before launching a new [[Definition:Insurance product | insurance product]], entering a new market, forming a [[Definition:Captive insurance company | captive insurer]], or deploying a major technology platform — designed to determine whether the initiative is financially viable, regulatorily permissible, and operationally achievable. Unlike informal market research, a feasibility study typically follows a rigorous methodology that evaluates projected [[Definition:Premium | premium]] volume, expected [[Definition:Loss ratio (L/R) | loss ratios]], [[Definition:Capital requirement | capital requirements]], [[Definition:Regulatory compliance | regulatory]] hurdles, and competitive dynamics. Captive insurance formation is one of the most common triggers: sponsors and their advisors must present a thorough feasibility study to the domiciliary regulator as part of the licensing application.

🔧 The study usually begins with a detailed assessment of the risk profile — historical loss data, exposure concentrations, and actuarial projections — followed by a financial model that stress-tests the venture under multiple scenarios. For a captive, the analysis quantifies whether self-insuring certain [[Definition:Line of business | lines of business]] produces meaningful savings over [[Definition:Commercial insurance | commercial market]] alternatives after accounting for setup costs, ongoing operating expenses, and required [[Definition:Statutory surplus | surplus]] levels. When the feasibility study supports an [[Definition:Insurtech | insurtech]] initiative or a new [[Definition:Managing general agent (MGA) | MGA]] program, it will also map out technology costs, [[Definition:Distribution channel | distribution channel]] strategy, and the timeline to achieve [[Definition:Underwriting profit | underwriting profitability]].

💡 Skipping or superficially conducting a feasibility study is one of the most expensive shortcuts in insurance. Regulators may reject a captive application outright if the study is deficient, and investors in new insurance ventures treat the feasibility study as a baseline credibility test. More broadly, a well-executed study surfaces deal-breaking issues — adverse selection, inadequate data, or hostile regulatory environments — before capital is committed, allowing stakeholders to pivot or walk away with minimal sunk cost.

'''Related concepts'''
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* [[Definition:Captive insurance company]]
* [[Definition:Actuarial analysis]]
* [[Definition:Business plan]]
* [[Definition:Capital requirement]]
* [[Definition:Rate filing]]
* [[Definition:Pro forma financial statement]]
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