Insurance persistency ratio

What is a Persistency Ratio in Insurance?

Persistency ratios are statistics that will help you choose your next insurance policy wisely. Read more to learn about persistency ratios.

Daina Mathew - Canara HSBC Life Insurance

Written by : Daina Mathew

Shraddha Tripathi - Canara HSBC Life Insurance

Reviewed by : Shraddha Tripathi

Shraddha Tripathi - Canara HSBC Life Insurance

Shraddha Tripathi

Digital Partnership
With 5 years of experience in the insurance industry, she brings a nuanced understanding of its complexities to her writing. Her expertise allows her to craft clear, insightful content that makes intricate insurance topics accessible and engaging.

2026-07-08

2872 Views

10 minutes read

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Whenever you are buying a new life insurance policy, you have plenty of numbers to look at. There are a few numbers that tell the story of the life insurance provider. These are mostly ratios based on the insurer’s performance in the previous year.

Some of the important ratios include the solvency ratio, claim settlement ratio, and persistency ratio. While you may already know about the solvency ratio and claim settlement ratio, the persistency ratio could sound like a new term, especially since its meaning isn’t immediately obvious.

Key Takeaways

  • A high persistency ratio indicates customer trust and satisfaction with an insurer

  • This ratio reflects the percentage of policyholders who continue paying premiums

  • Persistency helps insurers maintain profitability and policyholder retention

  • Greater financial awareness and clear communication about policy benefits can contribute to higher  persistency rates

  • Digital tools and automated reminders support policyholders in timely policy renewal

What is the Persistency Ratio in Insurance and How to Calculate It?

The persistency ratio measures the percentage of policyholders who continue paying their premiums regularly and keep their life insurance policies active over a specified period.

If an insurer has 1,000 active policies and 800 of them receive their premium payments on time during the year, the persistency ratio would be:

Persistency Ratio = 800/1000×100 = 80%

The number generally shows how long the customers stay with the insurer. Therefore, a strong persistency ratio is often viewed as a sign of customer loyalty and the insurer's ability to meet policyholders' long-term needs.

The ratio is measured for the financial year or a combination of financial years, starting from 1 year to 5 years. The 1st year’s persistency ratio is estimated in the 1st month of the next year and so on. That’s why the one-year persistency ratio is indicated as the 13th-month ratio, and the 3-year ratio would be called the 37th-month persistency ratio, and so on.

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Importance of Persistency Ratio in Life Insurance

The Persistency ratio is a very important metric for both insurance companies and policyholders. Here are some of the pointers for you to consider:

  • Importance for Insurance Companies: The persistency ratio of an insurance company highlights the trust current and older policyholders have in it. The more customers renew their insurance plans with a company, the higher their satisfaction with that company.

    A high persistency ratio signals to potential customers how much trust and credibility a company has earned from its existing customers. A low persistency ratio, on the other hand, signals to customers that they are more likely to discontinue and should evaluate the product, service experience, and suitability more carefully before buying. This indicates that the company needs to improve certain aspects of its service to better fulfil customers’ needs.

    A company must thus maintain a high persistency ratio to generate more revenue and sustain customer loyalty, as better renewals support stable premium inflows and reduce acquisition cost wastage.

  • Importance for Customers: A high persistency ratio first signals to customers that a particular company is generally worth buying a policy from. Some life insurance products, such as ULIPs, endowment plans, and savings plans, can help you achieve long-term financial goals in addition to providing life cover. Continuing to renew and invest in a policy you are happy with helps you use tax benefits for longer.

Do you know

Did You Know?

India is the fifth largest life insurance market in the world's emerging insurance markets, growing at a rate of 32-34% each year.


Source: IBEF

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What Causes a Persistency Ratio to Decline? 

A declining persistency ratio can impact an insurer's profitability. Several factors contribute to a decline in the persistency ratio, as follows:

  • Policyholder Behaviour: How policyholders perceive their insurance policies significantly affects the persistency ratio. Some common reasons are as follows:

    1. Affordability Issues: Financial difficulties such as reduced income, job loss, rising living expenses, or unexpected financial obligations may make it challenging for policyholders to continue paying premiums. As a result, insurance may become a lower priority, leading to missed payments, policy lapses, or surrender.

    2. Lack of Perceived Value: If policyholders do not see sufficient benefits from their policy or feel it no longer serves their financial needs, they may choose to discontinue it.

    3. Better Investment Alternatives: Some policyholders may switch to other financial instruments that offer higher returns, greater flexibility, or better liquidity, especially in the case of savings-oriented insurance products.

    4. Product Understanding and Service Experience: A lack of clarity regarding policy benefits, coverage, or terms can reduce confidence in the product. Similarly, dissatisfaction with after-sales service, claim settlement processes, or customer support may encourage policy discontinuation.

    5. Lack of Awareness of the Policy: In some cases, family members or nominees may be unaware of the policy's existence or premium due dates, particularly after the policyholder's death, resulting in unintentional lapses.

  • Economic Factors: Economic conditions can compel policyholders to reconsider their financial commitments, including life insurance policies. Some key economic reasons for a declining persistency ratio include: 

    1. Job Loss or Income Reduction: Due to financial instability, policyholders may miss their premium payments, lapse the policy, or surrender it

    2. Inflation or Rising Living Costs: Higher expenses can lead policyholders to stop paying  insurance premiums, resulting in a policy lapse

    3. Interest Rate Changes: If alternative savings options become more attractive, the policyholders might surrender their policy (especially for savings-oriented products)

  • Customer Experience Gaps: Gaps in customer experience can undermine customer loyalty. If policyholders feel dissatisfied with their insurer, they may discontinue their policies. Common customer satisfaction issues include:

    1. Complicated Policy Terms: If a policy is difficult to understand, policyholders may lose trust in it

    2. Poor Customer Service: A delay in claim settlement or changes in policy terms without prior notice leads to the discontinuation of the policy

    3. Mis-selling or Misinformation: If a policy does not meet customer expectations due to misrepresentation at the time of sale, policyholders are likely to discontinue the policy

Does Persistency Ratio Matter for Online Buyers?

Online policyholders have different expectations and buying behaviours than traditional buyers. Their long-term commitment to premium payments directly impacts insurers' profitability. 

Online vs. Traditional Policies:

Here's a table comparing online and traditional policies across key factors affecting persistency.

Key Factors

Online Policies

Traditional Policies

Ease of Comparison

Online buyers can compare multiple policies instantly and switch easily

Buyers rely on agents or other offline channels, making comparisons less self-directed

Self-Service Model

Buyers use digital tools to manage policies, ensuring hassle-free renewals

Agents assist with renewals, but the experience depends on the insurer’s/agent’s service model

Convenient Payment Options

Online buyers often benefit from seamless recurring payments, reducing the risk of missed deadlines

Payments may be manual or require agent assistance in some cases, though many insurers also offer digital payment options here

This table highlights how digital platforms enhance convenience, making persistency more manageable for online buyers.

How Digital Channels Affect Persistency Ratio?

The digital experience plays a crucial role in policy retention. Key factors influencing persistency ratio in online policies include:

  • Automated Reminders & Renewals: Policyholders can avoid missed payments with automated notifications and auto-debit/standing instructions (where enabled) on digital platforms

  • Ease of Policy Management: Policyholders stay engaged and continue their plans using user-friendly apps and dashboards

  • Trust & Transparency: Insurers with clear, well-explained digital policies and strong customer reviews tend to retain online buyers better (along with strong servicing and grievance support)

Conclusion

An insurance company must keep track of its persistency rates and improve them by better serving its customers. Knowing an insurer's persistency ratio will give a customer a better understanding of how consistently policyholders maintain their policies with the insurer over time. This information helps you make a well-informed decision and choose the right insurance policy for you and your family, taking into account factors such as product suitability, customer service, and claims experience.

Glossary:

  1. Solvency Ratio: A measure of how well a company's cash flow can cover its long-term debt
  2. Claim Settlement Ratio: The percentage of total claims an insurance company settles in a year relative to the total claims received
  3. Nominee: The person chosen to receive the policy benefits if the life assured dies during the policy term
  4. Policy Lapse: The termination of an insurance policy due to non-payment of premiums within the stipulated period
  5. Policy Renewal: The continuation of an insurance policy by paying the due premium before the policy lapses
Glossary book
Uncertain About Insurance

The persistency ratio helps assess an insurance company's customer retention and supports informed decision-making.

A life insurance persistency rate measures the percentage of insurance policies or investments that remain active and are not cancelled or surrendered by policyholders over a specified period. It indicates the level of customer retention and the stability of the insurance or investment portfolio.

According to the IRDAI, an insurance company must have a minimum of a 50% persistency ratio.

The persistency ratio is calculated at regular intervals during a life insurance term. For the first year, the calculation is done in the 13th month. For the second year, the 25th month. For the third year, the 37th month, and so on.

For example, an insurance company sold 1000 policies in a year, and 750 of them were renewed. The company's persistence ratio is 750:1000, or 75%.

The 61st-month persistency ratio is the percentage of policies that remain in force at the 61st month (approximately the end of the 5th policy year) and varies across insurers/channels/years.

The 13th-month persistency meaning in insurance refers to the percentage of policies still active after the first year, based on policyholders paying their second-year premium. It indicates customer satisfaction, product value, and sales quality, with higher ratios reflecting better retention and happier clients.

Premium persistency in insurance is the rate at which policyholders renew policies and pay premiums after year one, without lapsing or surrendering, reflecting policy retention.

Persistency risk refers to policies ending too early (lapse or surrender). It harms both sides:

 

For policyholders:
 

  • Lose life cover and family protection

  • May get little or no money back in early years

  • Miss bonuses, investment growth, and tax benefits

  • The new policy later costs more due to age or health

 

For insurers :
 

  • Lose profits; cannot recover high upfront costs

  • Brand trust falls if retention is low

  • Must spend more to acquire new customers

  • Business planning becomes unstable

  • Agents face commission clawbacks, causing demotivation and turnover

 

In essence, early exits reduce financial security for customers and profitability and stability for insurers.

Persistency rate in insurance is measured as the proportion of policies that remain active at set intervals after issuance, including the 13th, 25th, 37th, and 61st months. It indicates customer satisfaction and loyalty over time.

 

The 13th-month persistency ratio in insurance measures the percentage of policies that remain active after the first policy year. It is calculated by dividing the number of policies that have renewed and paid their second-year premium by the total number of policies issued during the relevant period, and then multiplying the result by 100. This metric helps assess customer retention and the quality of policy sales.

A high persistency ratio in life insurance generally indicates that a large proportion of policyholders continue paying premiums and keep their policies active over time. While benchmarks may vary across insurers and distribution channels, a higher persistency rate is often viewed as a sign of customer satisfaction, product suitability, and strong policyholder engagement.

Both metrics are important when evaluating a life insurer, but they measure different aspects of performance. The persistency ratio indicates how many policyholders continue renewing their policies over time, while the claim settlement ratio reflects the percentage of claims settled by the insurer out of the total claims received. Together, these ratios provide insights into customer retention, service quality, and claims performance.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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