Multivariate credibility with application to cross-selling financial services products

In this thesis, methods that are capable of improving the revenue and profitability of a financial services company are presented. Of particular interest is the use of customer specific information for pricing insurance products and segmenting a customer population based on the expected profitability of the customers. A prerequisite is the possibility for customers to have many different financial services products from the same provider. The thesis presents multivariate credibility models for how customer specific information from one (or many) financial services products is related to customer specific information from another financial services product. The models are foremost applied to the context of cross-selling (selling additional products to existing customers) where customer specific information from the offered cross-sale product is not available before the sale. As products are related, it is reasonable to use an appropriate (credible) amount of customer specific information from another product (or products), for estimating the profitability expected to emerge from the offered cross-sale product. In four separate but related articles, it is shown that having appropriate models for pricing and customer segmentation is of great importance for a financial services company aiming at running a profitable and growing business

Multivariate credibility with application to cross-selling financial services products

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Price and Profit Optimization for Financial Services

Prospective customers of financial and insurance products can be targeted based on the profit the provider expects to earn from them. We present a model for individual expected profit and two alternatives for calculating optimal personalized prices that maximize the expected profit. For one of these alternatives, we obtain a closed-form expression for the price offered to each prospective customer; for the other, we need to use a numerical approximation. In both approaches, the profits generated by prospective customers are not immediately observed, given that the products sold by these companies have a risk component. We assume that willingness to pay is heterogeneous and apply our methodology using real data from a European insurance company. Our study indicates that a substantial boost in profits can be expected when applying the simplest optimal pricing method proposed