A sticky consumer is the lifeline of any sales-driven business. So, it is in the life insurance sector, where a company’s persistency ratio – or the percentage of policyholders renewing their policies – is a key parameter of success. But persistency is not a mere metric; it’s a testament of the insurer’s commitment to its customers right from selling the right policy to smooth claims payouts.
Putting the customer first
Industry experience shows that a #CustomerFirst philosophy can improve a life insurance company’s persistency ratio. For instance, the customer-centric initiatives rolled out by IndiaFirst Life Insurance such as personalised communication and advance premium payment facility, which is a first for the industry, has led to an eight-percentage-point improvement in the company’s 13-month persistency ratio from 75.76% in 2020 to 83% in March 2023.
Typically, the highest drop-off in insurance renewals – or lapse rate — occurs after the first year. Hence, the 13-month persistency ratio is keenly monitored by the industry and the Insurance Regulatory and Development Authority of India.
The biggest reasons why customers don’t renew their policies is one, financial stress, and two, they fail to understand the benefits of their policy – or the loss incurred if they surrender it before the policy term.
Insurance is a business of trust and transparency. On the balance sheet, a lapsed policy may seem financially beneficial to company. However, to win the customer’s trust, it is imperative that as insurers, we place their interest front and centre by ensuring that their families remain protected and can achieve their financial goals.
A comprehensive communication strategy can play a crucial role in retaining customers. This could start with a pre-issuance verification call, which confirms that the customer has understood the terms of their purchased plan. Policyholders seldom read the fine print. That’s why the Insurance Regulatory and Development Authority of India (IRDAI) has proposed that from January 1, 2024, life insurers should provide a customer information sheet with the key policy details on purchase of a policy. Companies like IndiaFirst Life have already made a head-start on this by sending a one-page key feature document stating the terms and benefits of the policy to customers, post-issuance. The communication should not stop here, but insurers must also send periodic updates to customers throughout their product’s lifecycle.
Addressing the pain points
Consumers are often unaware of their potential loss if they surrender their policy before maturity. They don’t pay heed to renewal reminders, and don’t avail of the one-month grace period provided by insurers either. Personalised communication can help educate them.
For instance, insurers can send a detailed policy performance report at renewal time. This should spell out the premium the consumer has paid to date, the benefit or return accrued on it, as well as the surrender value and potential monetary loss on failure to renew. In some cases, a personal meeting can also help convince policyholders. Once consumers learn of their accrued benefits and potential losses, the probability of renewal increases.
Let me explain this with an example. Suppose a policyholder has a guaranteed retirement plan with an annual premium of INR 5 lakh. The plan provides 9% guaranteed return on the premium for the first two years, and pays a bonus, as declared, on the sum assured in subsequent years. After year one, the consumer decides to exit believing he can earn higher returns by deploying the funds in his business instead.
In this case, the renewal team can help him make an informed decision by taking him through the math. He needs to understand that he has already earned 9% or INR 45,000 on his first-year premium of Rs 5 lakh. By paying the INR 5 lakh premium in year two, he stands to earn an additional 9% on the total INR 10 lakh, that is, INR 90,000. On the other hand, the surrender value is likely to be less than INR 5 lakh if they choose to discontinue after the first year. Plus, his family will lose the vital life cover. By breaking down the benefits for the specific individual, you are able to make an impact.
Industry experience shows that persistency can improve if the renewal communication is product-specific to the policyholder. So, on a 10-year term policy, if a customer has paid the premium for four of the five premium payment years, a specific renewal reminder can be sent telling the policyholder that it’s the last premium, and then he and his family will continue to enjoy the plan’s benefits till maturity. Insurance firms can also use predictive analytics to identify policyholders with a low propensity to renew and send them specific communication to ensure they persist with their policies.
Sometimes, customers don’t renew their plan because they are unaware of the add-on services provided by insurers to help them tide over their financial stress. For instance, some insurers offer flexible-term loans on certain plans so that consumers can pay their premium and retain their life cover and benefits.
More recently, IndiaFirst Life became the first player in the sector to launch an advanced premium facility. This helps policyholders who have variable or cyclical incomes such as entrepreneurs or agriculturists by allowing them to pay their premium in advance when they have cash in hand. The regulator has permitted insurers to introduce this feature, and also offer a discount on the advance premium paid (to proportionately compensate for the interest the customer could have otherwise earned if this same amount was kept in a savings account).
Aligning the salesforce to customer service
For any insurer, a customer-centric salesforce is essential for high persistency. Insurers must not only monitor their net performance score (NPS) with customers, but they could also adopt an NPS for the sales team. This will help enhance the customer onboarding process – the right product fit increases the propensity to renew. In addition, insurers can align the sales team’s 13-month key performance indicators (KPIs) to customer retention.
Persistency is not a solo endeavor but a shared journey – for the customer and insurer. By putting the Customer First, insurers can improve their persistency ratio and create a win-win situation for both.
Views expressed by: Naman Gupta, SVP & Head – Branch Ops, Persistency & Financial Ops, IndiaFirst Life