Modeling Customer Purchase Behavior in the Insurance Industry Using System Dynamics

The Iranian insurance industry is a system in which each of the population segments, customers and their types, revenue management, various investment methods, and advertising methods have nonlinear and bidirectional relationships with each other. Analyzing this industry requires a tool to consider all the essential variables and incorporate the relationships between them in the analysis and simulation. System dynamics is a powerful approach for modeling and simulation that has shown its applicability in analyzing and predicting the behavior of complex systems. Therefore, this article used this tool to model and simulate the impact of advertising on the behavior of life insurance customers and its relationship with revenue and asset management. The system dynamics model was drawn, formulated, and validated with the help of the Vensim software. The model extraction process consisted of a comprehensive review of existing studies on customer behavior, identification of key variables related to life insurance purchasing behavior, consulting with insurance industry experts to validate the initial variables and identify factors specific to the Iranian context, drawing causal loop diagrams, and converting them into stock and flow diagrams. Statistical data were collected using the annual reports of the Iran Insurance Company, the Statistical Center of Iran, the statistical yearbooks of the Central Insurance of Iran, and semi-structured interviews with experts. After optimizing the structure and parameters of the model, simulation was performed over a 10-year horizon, and the results were analyzed in three scenarios. The first scenario showed that of continuing the current conditions would lead to an increase in the gap between life insurance expenses and revenue. In the second scenario, the effect of increasing the advertising budget was examined, which prevented the increase in this gap but the existence of a difference. The third scenario showed that a 10% improvement in the rate of word-of-mouth advertising dissemination, while compensating for the costs, will lead to the company's profitability.