InsurTech company Avantia updates its pricing model to use Bayesian optimization

Avantia, the technology-enabled insurer, is changing how it prices stuff. Instead of using the traditional so-called bucket tests, it will now swap it for Bayesian optimization.

The company explained it by saying that Bayesian optimization is a statistical method for finding the highest point on an unknown function or curve. Applied to retail pricing, this means the method will find the optimal price point on a yield curve based on sales volume and revenue.

By utilizing it through machine learning, Avantia hopes to be faster at identifying the optimal price for its products. The insurer anticipates a then per cent yield increase, coming from both incremental sales and an increase in revenue per sale due to the implementation of the new approach.

Mark Eastham, CEO at Avantia, said: “This is a big step forward for us. Traditional methods of retail pricing can be costly as they take too long to hone in on an optimal value. This new technique changes the game by allowing us to test more prices more quickly. And also to identify otherwise unexplored price points with potentially higher yields. This all means that we can locate our optimal price points very quickly indeed.”

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