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What Is Persistency Ratio In Insurance?

What Is Persistency Ratio In Insurance?

Life Insurance Persistency Ratio

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, persistency ratio could sound like a new term, especially since it doesn’t quite reveal its meaning, unlike claim settlement and solvency ratio.

What is Persistency Ratio?

Persistency ratio is the ratio of life insurance policies receiving timely premiums in the year and the number of net active policies. The ratio indicates how many policyholders are paying the due premiums regularly on the policies with the insurer.

The number generally shows how long the customers stay with the insurer. Thus, it won’t be wrong to consider an indicator of the insurer’s overall customer satisfaction. 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 1 year to 5 years. 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 13th month ratio and 3-year ratio would be called 37th month persistency ratio, and so on.

Why do policyholders stop paying the life insurance policy premiums?

  • Do not value the policy
  • Not clear with policy’s use in their life
  • Not satisfied with after-sale services of the insurer
  • Not satisfied with the product performance (mostly in case of ULIP plans)
  • Financial distress
  • In rare cases family not knowing about the policy after death of the policyholder

Most common of these reasons, 1 – 4, point to the insurer as the cause behind customer’s action. Thus, the persistency ratio becomes a measure of the insurer’s performance with the existing customer.

Obviously, you’d like to only go with the brand with the most satisfied customers. So, the ratio becomes an important factor in your buying decision. You can also call this ratio as a replication of customer reviews for brands.

Persistency Ratio of Canara HSBC Oriental Bank of Commerce Life Insurance

The solvency margin of Canara HSBC Oriental Bank of Commerce Life Insurance stood at a healthy 365% against the regulatory requirement of 150%. The company has reported the following persistency ratios for FY 19-20:

  • 13th month ratio at 81%
  • 61st month or five-year ratio at 50%

From the industry standards, where most insurers face the 50% ratio for the first year only, these numbers are good.

Does Persistency Ratio Matter for Online Buyers?

Certainly, it should. In fact, for online life insurance buyers, persistency ratio matters a lot more. Since you do not have a financial advisor mediating your relation with the company, the insurer needs to stay in touch with you. The insurer must help you understand the policy better, and inform you about how to make the most of the benefits.

Another important factor is that your family will need to connect directly with the insurer in case of a claim. So, the 24x7 helpline is quite important for you.

So, yes, persistency ratio matters at least as much, if not more, for online life insurance buyers. Also, don’t forget to look at other factors while getting a new life insurance plan.

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