So, if the insurer sold 100 policies and 70 of these were renewed after a year or in the 13th month, the 13th month persistency will be 70%. This method calculates the leakages of the policy from the base year or the year in which the policies were sold. The first method is to calculate persistency on a cumulative balance basis. Insurers calculate the persistency ratio in two ways. Leakages on account of death or maturity are not factored in, so this ratio primarily indicates leakages on account of lapse or surrender. Irdai, in its handbook of statistics, has looked at this ratio based on the number of policies because it believes that if persistency is calculated based on premium, the number gets skewed if one policy with a large premium gets lapsed. Persistency ratio shows the leakages in year-on-year renewals of life insurance policies and can be calculated both in terms of the amount of premium and the number of policies. Ltd.īefore we discuss why life insurers in India are unable to retain policyholders, and what poor persistency means for you, let’s start with understanding how this ratio is calculated. A lapse occurs at the point of sale when a policy is mis-sold or bought with poor understanding," said Vighnesh Shahane, chief executive officer and whole-time director, IDBI Federal Life Insurance Co. “Poor persistency is mainly on account of lapses. This behaviour is largely caused by poor sales practices followed by the insurance industry. Poor persistency is primarily the result of policyholders surrendering or lapsing their policies midway. “This is a concern because the 13th-month lapses are particularly costly for buyers, and this should have been on an upward trend by now," said Mehta. According to the latest handbook of statistics published by Insurance Regulatory and Development Authority of India (Irdai) for financial year (FY) 2014, persistency ratios for the 13th month fell for 13 of the 24 life insurance companies.
Even the 13th month persistency ratio doesn’t look promising.
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