Method and tools for insurance price and revenue optimisation |
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Authors: | Samuel Krikler Dan Dolberger Jacob Eckel |
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Institution: | 1.Director of Marketing Earnix Ltd,Israel |
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Abstract: | This paper introduces the emerging field of demand-driven insurance price and revenue optimisation. Following an introduction to the field, a case study is presented, illustrating a typical price optimisation project performed on a car comprehensive insurance portfolio at a direct insurance company. The study describes an actual price optimisation process using price testing, demand estimation, margin optimisation and controlled test validation procedures. Demand data were collected from a sample of 10,582 customers during June–July 2002. The subsequent demand-driven price optimisation process generated a profitability impact assessment of 9 per cent in net profit per a 1 per cent loss in customer retention. This assessment was validated in a controlled test conducted on a sample of 12,077 customers who were randomly assigned optimised or non-optimised prices. Test results validated the optimisation assumptions, generating a 10 per cent improvement in expected annual profit. |
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