What is Persistency Ratio ?

In the insurance sector, the term "persistency" refers to the retention of policies by customers, and the "persistency ratio" determines how long customers keep their policies by tallying the number of times they renew their coverage on an annual basis. The ratio is determined by simultaneously calculating the number of policies and the total amount of premiums paid. The insurance company determines the number of policies (both by count and premium) at the end of the first year (the 13th month persistency), the second year (the 25th month persistency), the third year (the 37th month persistency), the fourth year (the 49th month persistency), and the fifth year (the 55th month persistency) (61st month persistency).

Persistency ratio and its importance for insurance company :

It is essential for insurance companies to keep a persistent book since doing so boosts profitability and makes it easier to achieve economies of scale, which in turn reduces costs. Even for customers who have life insurance policies that are bundled with investment plans, it is essential to maintain the policies in order to fully enjoy the benefits. This is the case even if the policies are packaged as investment plans. As a result of the fact that persistency is such a significant contributor to an insurer's overall profitability in the life insurance sector, the persistency ratio is an extremely important statistic to track.

Why do policyholders stop paying the life insurance premiums on their policies?

  • Don't value the policy they have subscribed.
  • Unsure about how the policy will be used in their life
  • Subscriber weren't satisfied with the insurance company's post-purchase services,
  • Unhappy with the performance of the product (mostly in case of ULIP plans)
  • financial hardship
  • Rarely, the family is unaware that the policy even exists after the insured has passed away.

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