Customer-friendly life policies see more renewals

Regulatory changes in 2010 rocked the boat for most life insurers, but the new rules appear to be working in their favour now.

More and more policyholders are now renewing their policies rather than letting them lapse, a trend that was rampant even a couple of years ago. This is thanks to insurers re-jigging their products to comply with the regulatory norms, making them more customer-friendly.

Persistency — which measures the number of policies (or amount of premium) retained with an insurer across different time periods — has been steadily moving up for top private players over two to three years.

For instance, HDFC Life saw its 49th month persistency ratio (5th year after the policy issue) improve from about 33 per cent in 2012-13 to 56 per cent in 2015-16. This, in turn, means that in 2015-16, HDFC Life was able to retain 56 per cent of the policies issued between April 2011 and March 2012.

ICICI Life saw this ratio improve from 16 per cent to 55 per cent during the same period. SBI Life that had a low persistency of about 14 per cent three years back, recorded a much higher 50 per cent ratio in 2015-16.

The growth of life insurers in the last couple of years was hurt by the regulatory changes brought about by the Insurance Regulatory and Development Authority of India (IRDAI) in 2010 and 2013.

In 2010, the IRDAI introduced regulatory changes to ULIPs, including a cap on charges, surrender and discontinuance charges, and minimum levels of sum assured.

In 2013, the IRDAI issued regulations to link commissions to the premium paying term and to discontinue highest net asset value guarantee products, among other tweaks. The 2010 changes impacted the sale of ULIPs, while the axe fell on non-linked products in 2013.

But, life insurers, since then, have restructured their product portfolio to comply with the regulatory norms. Products are seen as more customer-friendly now, particularly ULIPs, which have been driving the growth for private players over the past two years.

In the past, high upfront charges on ULIPs and a lacklustre market left very little on the table for investors.

Life insurers too, mainly focussing on gaining market share through first-year premium growth before 2010, have turned their focus on cost rationalisation and persistency in recent years.

“Greater emphasis on the 13th month persistency for the past few years and complete ownership of persistency by sales team have been aligned as a key strategy,” says Manoranjan Sahoo, Chief Agency Officer, Reliance Nippon Life Insurance.

Third-party distributors with poor persistency record have been either abandoned or business relationships have been minimised, he adds. “Most of the employee performance payouts have been linked to 13th month persistency.”

One metric that truly reflects customers’ growing comfort with new policies issued post 2010, is the 61st month persistency ratio. The improvement here has been sharper across all insurers in 2015-16, as this takes into account policies issued post April 2010.

For instance, HDFC Life’s persistency ratio went up from 22.5 per cent in 2012-13 to 41.3 per cent in 2015-16. For players such as Reliance Life and ICICI Pru Life, chunk of the improvement has happened in fiscal 2016. From single-digit persistency of 8 per cent until 2014-15, Reliance Life saw it shoot up to 32.7 per cent in 2015-16. A similar sharp improvement was seen across players such as SBI Life and ICICI Pru Life.

According to Arijit Basu, MD and CEO, SBI Life Insurance, most top players are now looking to grow at a sustainable rate.

“It starts with product design. ULIPs that were introduced post 2010 have been doing well as they are better designed to suit the customers’ needs.”

The longer lock-in period for ULIPs post 2010 has also helped persistency. “Earlier, ULIPs had a three-year lock-in. Policies issued post 2010 have a five-year lock-in and this to some extent has helped third, fourth and fifth year persistency,” adds Arijit Basu.

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