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What Is Persistency Ratio in Insurance?
For an insurance consumer, the measure signifies the extent to which the policies have been renewed in a given year without being lapsed or policies being lost to other insurers.
Persistency with respect to the insurance industry is a measure of the total business that the insurance company is able to retain in a financial year without policies being lapsed or premium amount being lost to other insurers. The measure is estimated by a ratio known as persistency ratio.
It is calculated as the percentage of the insurer's total insurance policies that remain in force without being lapsed or in simple terms it is the percentage of all the written policies that are renewed by the insured annually. So if the percentage for a given year is say 70% then of the total 100 written insurance policies only 70 policyholders got their policies renewed.
As the ratio is a determinant of the insurer's profitability together with its viability, the companies aim at increasing the factor on a regular basis.
Why the persistency ratio is important for insurance customers?
For the insurance industry as a whole, the factor is crucial from the standpoint of customer retention and profitability. At the same time, for consumers it denotes how religiously they are standing by their long term financial commitment associated with insurance. Also, as per the directive of the IRDA, all of the claims shall be paid off without fail in case only when the policy continues for atleast three years with no discontinuity in between.
So, to utilize your insurance product to the core with maximum return you need to continue the policy until maturity. Make an informed decision at first to avoid any loss of premium or surrender charges. For it policy documents detailing the different aspects of the policy can come in handy. In case you have become prey to misselling of the insurance product by an agent, you have a free-look period in your favour.
Thus depending on your long-term financial goals and requirements, zero-in on the insurance product which will then enable you to stick to the long-term contractual obligation more dedicatedly. Keep in mind that betting on a new insurance product every time and discarding the existing cover shall fail to meet your financial planning needs in the long term.
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