News Life and Health30 Mar 2018

India:Life policy persistency ratios remain low

30 Mar 2018

Tthe life insurance industry was able to retain an average of 65% of its policies after the first policy year and 34% after the fifth policy year, according to the Handbook of Statistics published by the insurance regulator for the financial year ended 31 March 2017 (FY2017).

These ratios contrast sharply with the global average, where life policies retain close to 90% of their customers after a year of sale and about 65% after five years, reports Livemint.

Although still a long way to go, persistency numbers in India are slowly improving. In FY2016, the average persistency ratio in the 13th month was 61%; in FY2017, this number has improved to 65%. For the 61st month (the regulator doesn’t publish persistency beyond 5 years), persistency in FY2016 was just 29% which improved to 34% in FY2017.

“Increases in ticket sizes by selling policies to more affluent customer segments are perhaps the main reason behind improvement in the 13th month persistency. In the case of 61st month persistency, new Ulips (unit-linked insurance plans), where most customers continue to pay premiums even after the five-year lock-in period, are the main reason,” said Mr V Viswanand, senior director and COO of Max Life Insurance.

Actuarial experts say a persistency ratio of less than 80% can impact the profitability of insurers over the long run because fixed costs are then allocated over a smaller base, keeping the expense ratio high.

Mr Kapil Mehta, co-founder,, said: “Persistency will improve if traditional plans undergo reform similar to unit-linked insurance, or if a higher proportion of products is sold through direct channels like the online medium. Systemic changes like training agents to sell in a need-based manner takes place relatively slowly,” he said.

Mr KS Gopalakrishnan, CEO of RGA Life Reinsurance Company of Canada (India Branch), said: “Persistency has not shown a marked improvement and if the insurers are not able to retain even 50% of their customers after five years, then the products being sold are really not long-term products.”

Persistency disclosure

In addition, muddying the situation, the way persistency ratios are disclosed at present is not precise enough to give the full picture.

Insurance industry players say that some insurers include group policies (that are largely single-premium policies) and single-premium retail policies in their persistency calculation. Including these inflates the persistency reported as these are one-time payment policies and don’t lapse. Reporting persistency on the basis of retail regular premium policies reflects true customer retention, and that needs to be standardised.

There is also a need to break down persistency numbers by policy type and channel of distribution. “Term plans have a retention rate of more than 90%, and even if you lapse, you don’t lose anything in them because you are only paying the cost of insurance. Even in Ulips, the exit load is minimal, but it’s very high in non-linked plans. So there is a lot of merit in slicing the persistency numbers across product categories because insurers still manage to make profits through policy lapses in non-linked plans but customers lose the entire capital,” said Mr Gopalakrishnan.

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