Insurance

The Problem of Adverse Selection

In insurance underwriting the “wrong” customers can quickly lead to situation known as “adverse selection” where a segment of customers becomes unprofitable due to imbalance in the number of claims. This insurance company, which largely segmented customers by media, was facing an acute struggle with this problem.

Attracting the Right Customers

After spending 3 years on a data science initiatives, with no clear answers, the company turned to Sparkling. We were able to quickly identity that their best customers (~ 50% of the customer base) had strong indications of honesty and integrity in their personality traits. The customers tend to hold policies longer and file far fewer expensive claims. Using personality as a means to better qualify customers has changed the way the company approaches media buying and partnerships.