Insurance persistency ratio

What is the Persistency Ratio in Insurance?

Learn what persistency ratio is in life insurance, how it’s calculated, why it matters for customers and insurers, & what strong retention signals are

Written by : Knowledge Centre Team

2025-12-26

2852 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 which 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 solvency ratio, claim settlement ratio, and persistency ratio. While you may already know about solvency ratio and claim settlement ratio, the persistency ratio could sound like a new term, especially since it doesn’t quite reveal its meaning, unlike claim settlement and solvency ratios.

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

  • Financial awareness and policy transparency can improve persistency rates

  • Digital tools and automated reminders support policyholders in timely renewal

What is the Persistency Ratio in Insurance?

The persistency ratio is the ratio of the number of life insurance policies that continue (remain in force) at a given duration to the number of policies issued (or in force) at the start of that duration, as per the applicable measurement method. The ratio indicates how many policyholders are paying the due premiums regularly and keeping their policies active with the insurer.

The number generally shows how long customers stay with the insurer. Thus, it is reasonable to consider it an indicator of the insurer’s overall customer satisfaction and service experience. In simple terms, if you look at the reasons why anyone would stop paying life insurance premiums, the picture is quite clear.

The ratio is measured for the financial year or a combination of financial years, starting from one year to five years. The 1st year’s persistency ratio is estimated after completion of the first policy year (i.e., at the 13th month from policy commencement/issue, in standard industry reporting). 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 in Life Insurance

Persistency is a very important metric for both insurance companies and policyholders. Wondering why?

Here are some of the pointers for you to consider:

  1. Importance for Insurance Companies: The persistency rates of an insurance company highlight the trust or mistrust current and older policyholders have in it. The more customers renew their insurance plans with a company, the higher their satisfaction with that company. Thus, their persistency rates will be higher as well.

    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, tells customers that they are more likely to experience discontinuance and should evaluate the product, service experience, and suitability more carefully before buying. This indicates that the company needs to improve an aspect of its service to better fulfil customers’ needs.

    A company must thus maintain high persistency rates to generate more revenue and maintain customer loyalty because better renewals support stable premium inflows and lower acquisition cost wastage.

  2. Importance for Customers: A high persistency ratio first signals to customers that a particular company is generally worth buying a policy from. Insurance also works as an investment in some life insurance products, so it makes sense to buy a policy with the most trusted insurance companies and the most suitable product for your goals. Continuing to renew and invest in a policy you are happy with helps you use tax benefits for longer.
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Did You Know?

India ranks as the fifth-largest life insurance market among emerging economies, with annual growth of 32-34%.


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:

  1. Policyholder Behaviour: The way policyholders perceive their insurance policies plays a significant role in the persistency ratio. Some common reasons are as follows:
    • Financial constraints: Policyholders who struggle to manage their finances may fail to make premium payments
    • Lack of Awareness: They forget to pay their premiums due to poor financial tracking
    • Changing Priorities: Policyholders may find the policy no longer aligns with their financial goals or personal circumstances
       
  2. Economic Factors: Economic conditions can force policyholders to reconsider their financial commitments, including life insurance. Some key economic reasons for a declining persistency ratio include: 
    • Job Loss or Income Reduction: Due to financial instability, policyholders may miss their premium payments, lapse the policy, or surrender it
    • Inflation or Rising Living Costs: Higher expenses can lead policyholders to stop paying  insurance premiums, resulting in policy lapse/discontinuance
    • Interest Rate Changes: If alternative savings options become more attractive, the policyholders might surrender their policy (especially for savings-oriented products)
       
  3. Customer Experience Gaps: Customer experience plays a vital role in sustaining customer loyalty. If policyholders feel dissatisfied with their insurer, they may discontinue their policies. Common customer satisfaction issues include:
    • Complicated Policy Terms: If a policy is difficult to understand, policyholders may lose trust in it
    • Poor Customer Service: A delay in claim settlement or changes in policy terms without prior notice leads to the discontinuation of the policy
    • 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

Reasons Policyholders Stop Paying the Life Insurance Policy Premiums

Here are the reasons that contribute to policyholders discontinuing their premium payments:

  • Affordability Issues: Due to financial constraints, policyholders may deprioritise insurance

  • Lack of Perceived Value: If policyholders do not see immediate or tangible benefits, they may feel the policy is not worth continuing

  • Better Investment Alternatives: They may shift to other financial instruments that provide higher returns or better liquidity

  • Product understanding & service experience: In cases when they don’t clearly understand the policy’s benefits/coverage, feel dissatisfied with after-sales support, or are unhappy with how the product performs

  • Lack of awareness of the policy: In rare cases, the family/nominee may not know about the policy or premium due dates after the death of the policyholder

The most common of these reasons, 1-4, point to the insurer as the cause of the customer’s action. Thus, the persistency ratio measures the insurer’s performance with existing customers.

Obviously, you’d like to only go with the brand with the most satisfied customers. The ratio is an essential factor in your buying decision. You can also think of this ratio as a proxy for customer reviews of brands.

Persistency Ratio of Canara HSBC Life Insurance

The solvency margin of Canara HSBC Life Insurance stood at a healthy 205.8% for FY 2025 against the regulatory requirement of 150%. The company has reported the following persistency ratios for FY2025:

  • 13th month ratio at 82.5

  • 61st month or five-year ratio at 57.7%

By industry standards, where most insurers face a 50% ratio for in first year only, these numbers are good.

How to Calculate the Persistency Ratio?

There are two main ways to calculate the persistency ratio in life insurance. You can use either the annualised premium (premium basis) or the number of renewed policies (policy basis) to calculate the persistency ratio formula at a specified duration. The formula is as follows:
 

Persistency Ratio = (Number of policies in force at the specified duration/ Number of policies issued (or in force at the start of that duration)) x 100


For example, if a company’s persistency ratio for a particular year is 75%, that means 75 out of every 100 policies are still in force (i.e., have not lapsed/discontinued) at that duration.

The company checks the persistency rates at particular times. They check around the 13th month of the policy term to determine the persistency ratio in the 1st year. For a 2-year policy, it is the 25th month; for a 3-year policy, the 37th month, and so on.

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 FactorsOnline PoliciesTraditional 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:

The digital experience plays a crucial role in policy retention. Key factors influencing persistency 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 the persistency ratio of an insurer will give a customer a better understanding of how consistently policyholders continue 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. ULIP Plans: A multifaceted product that provides both insurance coverage and investment exposure to equities or bonds
  4. Nominee: The person chosen to receive the policy benefits if the life assured dies during the policy term
  5. 13th-month ratio: The percentage of policies active after year one: 13th-month renewals ÷ total sold
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Uncertain About Insurance

FAQs related to Persistency Ratio

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

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 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.

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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