Introduction
An auto insurance company has noticed a decline in profitability from its customers. By analyzing their claims data, they are looking for business solutions to increase profitability. Increasing the company’s profitability is important to ensure they can keep helping customers with their claims while supporting the company and its workers. The goal of this analysis was to investigate high profit and low profit customers and the differences between them. This included the difference between long term and short term customers, vehicle types, policy and coverage, etc. These insights are important because they could help the company identify target customers who have a higher lifetime value, problem customers, most profitable coverage and policy types, and more to create business solutions that can help increase profit.
Key Findings
After analyzing the claims data from the insurance company, there were several key insights that could support solutions to increase profitability. First, there is a positive correlation between how long a customer stays and their profitability. From the analysis, on average, customers that have policies active for more than 30 months have a positive lifetime value. There was also a positive correlation between monthly premium and lifetime value. IN general, customers with monthly premiums above \$75 had a positive lifetime value. Between the coverage types, basic has the lowest average customer lifetime value followed by extended and premium. Basic coverage customers also have the highest average number of claims (the only customers with 4 claims) and the lowest average monthly premium. We know from analyzing the data, that customer lifetime value is lower, on average when customers have a higher number of claims and low monthly premiums making basic coverage customers a problem group to investigate further. Dialing in on the coverage groups, their claims, and monthly premiums, there seems to be no increase in monthly premium the higher the number of claims filed. As the average customer lifetime value goes down with the number of claims filed, the company may want to consider ways to make customers with more claims more profitable by increasing their premium as their claims go up. Through this analysis, we also found that midsize cars have the highest number of claims in all vehicle classes and the vehicle class with the most claims are four-door cars. Four-door cars also happen to have the second lowest average customer lifetime value. As the class of car increases from two-door luxury SUV, we see the average premium increase and the average lifetime value also increase, a common theme throughout the analysis. Lastly, customer demographics were studied to pinpoint characteristics of high and low value customers. In asking this question, we found that females had a higher average lifetime value (more than \$400 on average) than males, customers with master’s degrees are highly profitable but make up less than 10% of customers, and customers that live in suburban areas have a higher lifetime value than rural or urban areas. These insights into demographics help the company find problem customers, males, and target highly profitable customers, customers with master’s degrees and suburban customers, to make adjustments to premiums and marketing strategies to increase profit.
Recommendations
With a focus on increasing profitability, there are a few recommendations that the insurance company could make to achieve this goal. Because the length of the policy is positively correlated to lifetime value, the insurance company could offer longer monthly policies or incentivize customers looking to leave with lower premiums in order to keep them longer (given they don’t have a lot of claims). Because of the positive correlation, by retaining current customers longer, the insurance company could see and increase in profits. Seeing that the monthly premium does not increase with the number of claims and customers with a higher number of claims are less profitable, the insurance company should look into increasing monthly premiums for those customers in an effort to close the gap on the profit they are losing from the high number of claims. The increase in premiums based on claims could also incentivize customers to drive safer and prevent more accidents in an effor to keep thier premium lower. A trend throughout the analysis was that groups with higher premiums, on average, had higher lifetime value. This insight could help drive marketing strategies to attract new customers with more luxury vehicles or try to sell more extended and premium coverage plans. These recommendations aim to decrease the company's loss on claims and increase profit through high value coverage plans and retaining customers for longer.