Survival Analysis of a Household Portfolio of Insurance Policies: How Much Time Do You Have to Stop Total Customer Defection?

25 Pages Posted: 5 Aug 2008

See all articles by Patrick L. Brockett

Patrick L. Brockett

University of Texas at Austin - Department of Information, Risk and Operations Management

Linda L. Golden

University of Texas at Austin - Red McCombs School of Business

Montserrat Guillen

Jens Perch Nielsen

City University London - Cass Business School

Jan Parner

affiliation not provided to SSRN

Ana Maria Perez-Marin

University of Barcelona

Abstract

Customer-side influences on insurance have been relatively ignored in the literature. Using the household as the unit of analysis, this article focuses on the behavior of households having multiple policies of different types with the same insurance company, and who cancel their first policy. How long after the household's cancellation of the first policy does the insurer have to retain the customer and avoid customer defection on all policies to the competition? And, what customer characteristics are associated with customer loyalty? Using logistic regression and survival analysis techniques, an assessment is made of the probability of total customer withdrawal, and the length of time between first cancellation and subsequent customer withdrawal. Using a European database spanning 54 months of household multiple policyholder behavior, the results show that cancellation of one policy is a very strong indicator that other household policies will be canceled. Further, the insurer can have time to react to retain the customer after the first cancellation, however, this time is significantly dependent on the method used to contact the company, household demographics, and the nature of the household's insurance policy portfolio. Surprisingly, core customers having three or more policies in addition to the canceled policy are more vulnerable to total defection on all policies than noncore customers. Further, the potential customer repelling effects of premium increases seem to wear out after 12 months. Strategic implications of the results are presented.

Suggested Citation

Brockett, Patrick L. and Golden, Linda L. and Guillen, Montserrat and Nielsen, Jens Perch and Parner, Jan and Perez-Marin, Ana Maria, Survival Analysis of a Household Portfolio of Insurance Policies: How Much Time Do You Have to Stop Total Customer Defection?. Journal of Risk & Insurance, Vol. 75, Issue 3, pp. 713-737, September 2008, Available at SSRN: https://ssrn.com/abstract=1202449 or http://dx.doi.org/10.1111/j.1539-6975.2008.00281.x

Patrick L. Brockett (Contact Author)

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States

Linda L. Golden

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Jens Perch Nielsen

City University London - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Jan Parner

affiliation not provided to SSRN

No Address Available

Ana Maria Perez-Marin

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

No contact information is available for Montserrat Guillen

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