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Identifying Insurance Companies’ Business Models in Ukraine: Cluster Analysis and Machine Learning

Author

Listed:
  • Oleksandr Tarnavskyi

    (National Bank of Ukraine
    National University of Kyiv-Mohyla Academy)

  • Viktor Kolomiiets

    (National Bank of Ukraine)

Abstract

This study examines the performance of the nonlife insurance companies that operated in Ukraine in 2019– 2020. Specifically, we employ a set of clustering techniques, e.g. the classic k-means algorithm and Kohonen self-organizing maps, to investigate the characteristics of the Retail, Corporate, Universal (represented by two clusters), and Reinsurance business models. The clustering is validated with classic indicators and a migration ratio, which ensures the stability of the clusters over time. We analyze the migration of companies between the identified clusters (changes in business model) during the research period and find significant migration between the Reinsurance and Corporate models, and within the Universal model. Analysis of the data on the terminatio of the insurers’ ongoing activity allows us to conclude that companies following the Universal business model appear to be the most financially stable, while their peers grouped into the Reinsurance cluster are likely to be the least stable. The findings of this research will be valuable for insurance supervision and have considerable policy implications.

Suggested Citation

  • Oleksandr Tarnavskyi & Viktor Kolomiiets, 2021. "Identifying Insurance Companies’ Business Models in Ukraine: Cluster Analysis and Machine Learning," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 252, pages 37-55.
    • Handle: RePEc:ukb:journl:y:2021:i:252:p:37-55
    DOI: 10.26531/vnbu2021.252.02
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    More about this item

    Keywords

    neural networks; business model; cluster analysis; insurance;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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