The COVID-19 crisis has highlighted the importance of having a comprehensive life cover in place. Once you purchase a life insurance policy, it’s essential that you pay regular premiums for ensuring that the policy remains active. Failing to make timely premium payment would lead to the lapse of your insurance policy. To measure their customer retention rate over a period, the insurance industry derives persistency ratio. The persistency ratio is basically the proportion of policyholders who continue to pay their renewal premium. It is used to gauge the quality of sale made by the insurer. Renewing the policy also ensures that customers and their loved ones continue to have a safety net.
Moreover, if the persistency ratio of a particular insurer is high, it signifies that the product features and benefits meet the policyholder’s needs. The persistency ratio is a crucial element for building a long-term relationship between a policyholder and the insurer.
Persistency ratio in India
As per the Insurance Regulatory and Development Authority of India (IRDAI), in the year 2015-16, the average persistency ratio for life insurance policies in the 13th month was just 61%. Whereas, the global persistency ratio is around 90% in the 13th month and over 65% after 5 years.
What leads to low persistency ratios?
One of the primary reasons for the low persistency ratio is the dissatisfaction and lack of trust amongst policyholders about their insurance policies. Thus, many policyholders believe they have probably invested their money in the wrong product, and this makes them doubtful of renewing their policies.
Additionally, many insurers fail to identify the needs and financial circumstances of their customers, thereby leading to low persistency ratio.
How to tackle the issue of low persistency ratio?
The good news is that both policyholders as well as the insurers are taking proactive measures such as adapting technology to decrease lapsation and boost the persistency ratio. A study conducted in 2016 by LexisNexis Risk Solutions highlights the positive response of Indian consumers to using mobile applications and other digital mediums to buy and understand insurance products.
With the advent of digitization, many insurance companies have launched their personalized mobile apps, which make purchasing insurance, claim settlement, premium payment, etc. completely hassle-free. Moreover, insurers are also taking efforts to collect customer reviews and understand their needs in a detailed manner. This helps them design products and policies that cater to their customers in the best possible way.
Digitisation has also helped in smoothening the customer service offered by insurance companies, thereby reducing lapsation and improving customer satisfaction. To sum it up, a user friendly and digital approach will ensure customer retention and address the growing concern of low persistency ratio efficiently.
Digitization in the insurance industry
Nowadays, you can easily compare and purchase a life insurance policy online from the comfort of your home. If you are looking forward to purchasing a life insurance policy that offers a high sum assured at a low premium, you can settle for a term insurance plan.
Term insurance provides life cover to the policyholder for a specified duration. In case of an unfortunate demise of the policyholder during the policy term, the insurer provides the death benefit to the beneficiary. When buying a term plan, make sure that you settle for a reputed insurer with a high claim settlement ratio. You can learn about the authenticity and credibility of the insurer online by checking its existing customer reviews.
Once you purchase a term insurance plan, ensure to make timely premium payments to avoid policy lapse. You must settle for an affordable premium so that you can easily renew your term plan without straining your finances. Nowadays, you can easily calculate your premium with the help of an online term insurance premium calculator and settle for a premium that suits your budget.