Beyond the Cost Model: Understanding Price Elasticity

Once cost models have been constructed, insurers spend a significant amount of time translating those expected cost models into a rating algorithm. Today, competitive analytics are widely used to support this effort. However, companies often fail to fully integrate competitive analytics into the pricing process. The intent of this paper is to provide the basic tools needed for insurers to make more effective pricing decisions using customer price elasticity of demand. To achieve this, we will explore demand modeling techniques, as well as practical applications of demand modeling in pricing.

Keywords: Price elasticity; demand; generalized linear modeling; price simulation; price optimization