Hong-Jie Li , Xing-Gang Luo , Zhong-Liang Zhang , Shen-Wei Huang , Wei Jiang
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A usage-based insurance (UBI) pricing model considering customer retention
Usage-based insurance (UBI) charges drivers differently through telematics-based driving risk assessments. While current UBI pricing models differentiate driving risks, their overly discriminative prices may expel risky drivers, whose driving behaviors could have been modified, thereby incurring insurers' losses in profits. We propose a new UBI pricing model to address this problem by incorporating customer retention into the conventional UBI framework. Specifically, our model offers targeted discounts based on drivers' price sensitivity to retain those who may terminate the insurance contract, as well as provides concrete suggestions to help them modify unsafe driving behaviors. Using empirical data from a major Chinese auto insurer, we confirm that our model yields higher profits for insurers over the UBI pricing model that does not account for customer retention, and exemplify how suggestions for drivers can be drawn from driving profiles.
期刊介绍:
Insurance: Mathematics and Economics publishes leading research spanning all fields of actuarial science research. It appears six times per year and is the largest journal in actuarial science research around the world.
Insurance: Mathematics and Economics is an international academic journal that aims to strengthen the communication between individuals and groups who develop and apply research results in actuarial science. The journal feels a particular obligation to facilitate closer cooperation between those who conduct research in insurance mathematics and quantitative insurance economics, and practicing actuaries who are interested in the implementation of the results. To this purpose, Insurance: Mathematics and Economics publishes high-quality articles of broad international interest, concerned with either the theory of insurance mathematics and quantitative insurance economics or the inventive application of it, including empirical or experimental results. Articles that combine several of these aspects are particularly considered.