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Modelling the purchase dynamics of insurance customers using Markov chains

Modelling the purchase dynamics of insurance customers using Markov chains
Modelling the purchase dynamics of insurance customers using Markov chains
This paper considers how various types of Markov chains can be used to help forecast the purchase behaviour of customers. The models are used in a case study of the purchase behaviour of the customers of a major insurance company.As well as looking at the impact of relaxing the first order Markov and time homogeneity assumptions which are usually used in Markov chain models, the paper also looks at models based on mover-stayer ideas and ones which enlarge the state space by including the type of purchase as well as the time of purchase. One important aspect of long term customer relationships such as those which occur in the insurance and assurance industry is the impact of changes in the economy. The final section show how these can be incorporated into Markov chain models and how they can make a significant difference to the quality of the predictions.
consumer behavior, data mining, probability models
CORMSIS-05-02
University of Southampton
Bozzetto, Jean-Francois
0806c0ad-984f-4be6-a3b5-70422c9a6e78
Tang, Leilei
59add3c2-5c1f-460c-8970-5dc0686df272
Thomas, Lyn C.
2cec50bd-42aa-4232-a004-2085c3aac8e9
Thomas, Stephen
f5a5bfe7-9f05-4f81-83d0-14a623c9c14d
Bozzetto, Jean-Francois
0806c0ad-984f-4be6-a3b5-70422c9a6e78
Tang, Leilei
59add3c2-5c1f-460c-8970-5dc0686df272
Thomas, Lyn C.
2cec50bd-42aa-4232-a004-2085c3aac8e9
Thomas, Stephen
f5a5bfe7-9f05-4f81-83d0-14a623c9c14d

Bozzetto, Jean-Francois, Tang, Leilei, Thomas, Lyn C. and Thomas, Stephen (2005) Modelling the purchase dynamics of insurance customers using Markov chains (Discussion Papers in Centre for Operational Research, Management Science and Information Systems, CORMSIS-05-02) Southampton, UK. University of Southampton

Record type: Monograph (Discussion Paper)

Abstract

This paper considers how various types of Markov chains can be used to help forecast the purchase behaviour of customers. The models are used in a case study of the purchase behaviour of the customers of a major insurance company.As well as looking at the impact of relaxing the first order Markov and time homogeneity assumptions which are usually used in Markov chain models, the paper also looks at models based on mover-stayer ideas and ones which enlarge the state space by including the type of purchase as well as the time of purchase. One important aspect of long term customer relationships such as those which occur in the insurance and assurance industry is the impact of changes in the economy. The final section show how these can be incorporated into Markov chain models and how they can make a significant difference to the quality of the predictions.

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Published date: 2005
Keywords: consumer behavior, data mining, probability models

Identifiers

Local EPrints ID: 36179
URI: https://eprints.soton.ac.uk/id/eprint/36179
PURE UUID: 4c4f96a3-f4f5-430a-8009-5bc97b7d1d65

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Date deposited: 23 May 2006
Last modified: 17 Jul 2017 15:45

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