Using probability to predict my sales amount

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  • Thread starter semidevil
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  • #1
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Main Question or Discussion Point

Suppose I'm trying to answer the following question: How much more insurance premium will I get, by raising rates by 10%. for this exercise, I"m assuming price is the only factor, just to simplify things.

Lets say I give 20,000 quotes per month. Obviously, not all will purchase my policy because the price might be too high. Now, if I increase rates by 10%, I will probably have even less people purchase the policy. If all my quotes range between $500 to $1000, is it possible to do simple division and group my policyholders by the probability that they will purchase at the different price points? i,e if 5000 of my purchased policies are in the $500 price point, then I can say that the probability of purchasing a policy at $500 is 5000/20,000 (25%).

so I then sum up all the expected values (probability * price point) to get an estimate of how much premiums I will get from this rate increase?
 

Answers and Replies

  • #2
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The question is similar to asking; 'If I bet on THIS horse, does that make it more likely to win than if place my bet on THAT horse".
 
  • #3
Stephen Tashi
Science Advisor
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is it possible to do simple division and group my policyholders by the probability that they will purchase at the different price points? i,e if 5000 of my purchased policies are in the $500 price point, then I can say that the probability of purchasing a policy at $500 is 5000/20,000 (25%).
I'd say no.

If a person did accept a quote at $500, wouldn't they also be likely to accept a quote at $400 if you had made such an offer ?
 
  • #4
chiro
Science Advisor
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Hey semidevil.

You are asking a question based on whether something is conditional or not (in probability).

If you gamble the probabilities don't change.

If you risk manage - they do in a conditional capacity.
 

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