Time-varying effects in the analysis of customer loyalty: A case study in insurance

Insurance customers usually hold more than one contract with the same insurer. A generalization of classical survival analysis methods is used to examine the risk of losing a customer once an initial insurance policy cancellation has occurred. This method does not assume that the model parameters are fixed over time, but rather that the parameters may fluctuate. Our results suggest that the kind of contracts held by customers and the concurrence of an external competitor strongly influence customer loyalty right after that cancellation, but those factors become much less significant some months later. Our study shows how predictions of the probability of losing a customer can be readjusted and improves the way companies manage business risk.