Business Analytics

Project Report
on
Deloitte Insurance, Pricing Strategy Development

SUBMITTED BY: -
Group 1

Bishal Kumar Patro (MBA20071)

Palash Gupta (MBA20090)

Ritika (MBA20098)

Sekhar Pratim Gogoi (MBA20104)

Shubham Mittal (MBA20235)

INDIAN INSTITUTE OF.MANAGEMENT.JAMMU

Jammu - 180016
INTRODUCTION TO INSURANCE INDUSTRY AND ROLE OF DELOITTE:
It is expected in our country to have an overall market size of the insurance sector of US$280
billion by 2020. The life insurance sector and The non-life insurance sector are the major
components of the Insurance market. The insurance sector comprises the companies offering risk
management as insurance contracts. An essential concept of insurance is that one party, the
insurer, will guarantee payment for an uncertain future event. Another party, which is insured, or
we can say the policyholder, pays a smaller premium to the insurer for that protection during that
uncertain future.

Risk, operations, technology, tax, actuarial, and audit are some fields in which Deloitte brings
experts. All these skill sets, coupled with deep industry knowledge, enable providing a breadth of
services to insurance broker clients, casualty and property, reinsurers, and life. Health,
Retirement, General insurance, Life, and reinsurance clients with informed and insightful
services are some services that are provided from strategy definition to transformation of
business and its implementation.

Use of Data Analytics in the Insurance Industry:

Leads Generation: -
In this competitive world, there are several insurers facing difficulties in selecting appropriate
insurance schemes. Advanced insurance data analytics helps companies analyze customer
behaviors through the unstructured data available on the web. It provides market opportunities to
promote and offer more profitable insurance policies to their target customers.

Developing Brand value by enhancing Customer satisfaction: -

Data analytics can help an insurance company predict the needs of prospective customers by
analyzing the data trend. It will help them to increase their sales in comparison to those insurance
companies that are following the traditional selling approaches. However, analysis of the existing
customer data can be beneficial in improving customer satisfaction.

Reducing fraudulent cases: -

Most of the insurance companies are going through some challenges of fraud cases in claim
processing. It can be reduced by predictive analysis in the insurance sector.

Risk Prediction and Management: -

Using data analytics, the complex underwriting task can be simplified by the insurers. Hence the
data trend would predict a lesser premium for a customer who has a lesser risk profile in
comparison to a customer whose profile has higher risk.

Enabling business growth: -

Data analytics helps in the growth of the insurance company through predictive analysis of big
data. The essential element of the insurance domain is quantifying the level of risks, and it can be
done through the procurement of analysis of user data.
PROBLEM STATEMENT:
In an insurance company predicting an individual’s insurance premium price is the most crucial
part for the insurer. To resolve this problem, we would predict the medical charges of an individual
by using a linear regression model and build an analytical solution to develop an attractive pricing
strategy for Deloitte insurance company so that it can be able to grab a bigger chunk of the Indian
market by analyzing the data available on the web.

MODEL PREPARATION:
The data of 1338 health insurance customers were collected from the secondary sources like
Kaggle. It tells how much the customers are paying for availing the insurance and provides us
the information about the factors which affect the insurance premium.
The factors that were taken into consideration were Age, Sex, BMI, Children, Smoker, Region
and Charges. Based on these factors the data was analyzed using certain techniques. Based on
this data, it would be figured out ‘how much our competitors are charging and on what factors
they determine that.

MODEL:
On the basis of 6 variables taken above a linear regression model was prepared and it was found
that out of 6 independent variables, 3 are significant. Thus, the other variables were eliminated
and only 3 were taken into consideration. These 3 variables are: -

1. Age: Health of people largely depends on the age, as generally are a certain age, health of
people starts declining.
2. Smoker: Smoking has a direct effect on your health. It was expected that for nonsmokers,
the premium will be less as compared to smokers.
3. Children: Number of children is also affecting the health insurance premium an
individual needs to pay.

RESULTS:
To build a relationship between the average price and several independent variables, we got that
the factors viz. age, sex, children, and smoking status are very significant that have an impact on
the average insurance premium. Then we make a logistic regression model keeping average price
as dependent variable and only these significant variables independent, we got the following
result.
From the above data, we get the following linear regression equation for Insurance premium
• Average Insurance Premium=
-11801.3+257.7(age)+23806.9(smoking)+473.6(children)+322.0(bmi)

RECOMMENDATION:
We would recommend Deloitte Insurance to keep the insurance premium charges below the
charges derived from the equation above, as these are the charges, we other established players
are charging. So, to penetrate the market, Deloitte needs to keep its charges below the industry
average. Also deloitte can make use of these results to design further policies specially targeted
for people having high score in these factors.

APPENDIX:
1. Tools used: R
2. References: https://www.kaggle.com , https://www2.deloitte.com