Machine Learning-Based Predictions of Customers’ Decisions in Car Insurance

Predicting customer decisions allows companies to obtain higher profits due to better resource management. The accuracy of those predictions can be currently boosted by the application of machine learning algorithms.

We propose a new method to predict a car driver’s decision about taking a replacement car after a vehicle accident happens. We use feature engineering to create attributes of high significance. The generated attributes are related to time (e.g., school holidays), place of collision (e.g., distance from home), time and conditions (e.g., weather), vehicles (e.g., vehicle value), addresses of both the victim and the perpetrator. Feature engineering involves external sources of data.

Five machine learning methods of classification are considered: decision trees, multi-layer perceptrons, AdaBoost, logistic regression and gradient boosting. Algorithms are tested on real data from a Polish insurance company. Over 80% accuracy of prediction is achieved. Significance of the attributes is calculated using the linear vector quantization method.

Presented work shows the applicability of machine learning in the car insurance market.