Large-scale surrender of insurance policies, particularly unit-linked insurance plans, has forced the regulator to examine the issue. Renewal of insurance policies is measured by a parameter called persistency.
According to IRDA (Insurance Regulatory and Development Authority) data, in fiscal 2012 life insurers had to pay Rs 71,208 crore on account of surrenders (withdrawals), of which, LIC paid Rs 41,531 crore and private sector insurers, the balance.
In fiscal 2012, ULIPs accounted for 68 per cent of the total surrender for LIC, and 97 per cent of the total for private insurers. “Though the industry has shown high growth rates in recent years, the persistency rates in the 13{+t}{+h} and subsequent months are not particularly healthy. “The persistence rate after the 61st month for many insurers is in single digits, whereas world over it is around 80 per cent,” said IRDA in a communication to all life insurers. Persistency measures the number of policies retained in the books of an insurer. If a lot of policies lapse (non-renewal), then it could be taken as a sign of mis-selling by insurers. Currently, life insurers are required to provide persistency ratio numbers (percentage of policies on which premiums are still being paid after their sale) to the regulator on an annual basis.
However, industry experts say that there is an anomaly in the way each life insurers report their numbers. For example, some report persistency figures on a month-on-month basis while others report year-on-year. “There is a variation in the method of calculation of the persistency figures. So, the regulator may be looking at standardising the methodology to enable direct comparison among companies,” said Kotak Life actuary chief Sunil Sharma. “A standard definition of persistency is the most important metric to measure non-renewal of premiums in life insurance policies. Currently, companies calculate in ways which will give a better picture of their persistency ratio,” said a senior regulatory official.
The regulator has asked the appointed actuary of the life insurer to analyse the persistency numbers, highlight the areas of concern and outline the proposed course of action that will be undertaken to address it.