Predicting Behaviors of Insurance Costumers by Using the Genetic Algorithm

Volume 14, Issue 1, pp 54-70 http://dx.doi.org/10.22436/jmcs.014.01.06

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Authors

Fatemeh Bagheri - Engineering faculty, Golestan University, Gorgan, Iran Majid Ziaratban - Engineering faculty, Golestan University, Gorgan, Iran Mohammad Jafar Tarokh - Industrial Engineering faculty, K. N. Toosi University of Technology, Tehran, Iran

Abstract

Improving customers’ satisfaction, retaining loyal customers, and acquiring new customers are the most important goals of companies. Because of existing competition conditions among insurance industries, especially in optional insurances such as vehicle body insurance, implementing policies which have benefits for both customers and insurance companies can increase the corporation profitability and customers’ satisfaction. In this paper, general policies of vehicle body insurance in Iran are investigated. In this way, a non-linear function \((C_j)\) is proposed to separate profitable and harmful customers. This function is based on some insurance features of customers such as age of a vehicle, vehicle price, vehicle type, and number of years without accident. Customers are categorized based on the calculated values of \((C_j)\) in which all parameters are optimally set. The parameters have to be set in the training phase to calculate reliable \((C_j)\) values for customers. Parameters of \((C_j)\) are set so that in a subset of the customers of the training set for which the value of \((C_j)\) is greater than a threshold \((Th)\), the number of profitable customers and disadvantageous customers should be maximized and minimized, respectively. A customer with positive \(M\) (monetory) value is a profitable customer. To optimize this multivariable problem with large number of parameters, the genetic algorithm is used. After optimizing the parameters in the training phase by using GA, the behaviors of the customers in the test set are predicted. In the prediction phase, it was estimated that a costumer is profitable or not, even he had accidents and received recompenses from the company. If a customer is predicted as profitable, the company allows him to enjoy some discounts. In the current Iranian insurance policies, all discounts are canceled for next insurance year if a customer has accidents and gives recompense from the company. By implementing the proposed policy, the customers’ satisfactions are increased and also more new customers are acquired from other insurance companies.

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Keywords

• Behavior prediction
• insurance customers
• genetic algorithm.

MSC

•  68T05
•  91B30
•  91B42

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