Customer Lifetime Value
Insurance calculation system that determines customer value metrics to optimize retention strategies and set appropriate service tiers for policyholders.
Solution
This insurance analytics system evaluates customer profitability by processing purchase history data to calculate meaningful lifetime value metrics. It transforms raw transaction data into actionable insights by analyzing order values, purchase frequency, gross margins, and retention rates. The system automatically accounts for acquisition costs when determining a customer's true profitability over their projected relationship with the insurer.
Based on calculated lifetime value metrics, the system categorizes customers into appropriate service tiers (platinum, gold, silver, or standard) and recommends specific retention strategies. Platinum customers receive high-touch service and exclusive offers, while other tiers receive progressively standardized service levels. This strategic segmentation allows insurance providers to allocate resources efficiently, customize retention efforts, and maximize long-term profitability across their customer portfolio.
How it works
The decision graph processes customer data through two key components:
Value Calculation Node: Processes customer purchase history to derive essential metrics:
- Average order value from historical policy premiums
- Purchase frequency normalized to annual basis
- Gross margin percentage converted to decimal format
- Expected customer lifetime based on retention probability
- Basic lifetime value calculation using the standard CLV formula
- Acquisition cost ratio to evaluate marketing efficiency
- Adjusted lifetime value with acquisition costs subtracted
Segmentation Decision Table: Evaluates the adjusted lifetime value against predefined thresholds:
- Assigns customer tier classification (platinum, gold, silver, standard)
- Provides specific service and retention recommendations for each tier
- Ensures consistent treatment of customers with similar value profiles
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