Insurers get choosy about their customers And this could be a good news you

The annual numbers for the 24-member strong life insurance companies in the county are trickling in. Apart from higher investments by the foreign partners, another figure that is bringing smiles back to the industry is the improving renewal scenario. A study by dna indicates that 18 life insurers have managed to improve the second year renewals, while 15 insurers have seen the critical sixth year renewal numbers rise, based on numbers released for March 31, 2016 and December 31, 2015 in some cases where annual numbers haven't been released yet.

Only 10 players managed to see positive renewal growth during the financial year 2014-15, as per the regulator's Handbook of Indian Insurance Statistics for 2014-15.

The renewal after the first year is crucial for insurance companies as well as buyers as lapsed policies lead to the buyer losing out on premium paid during the initial years if not renewed for a minimum of five years. Post five-year mandatory premium payment period, too many insurance policy holders fail to continue the cover, thereby not fully utilising the value of the product resulting in remorse.

This investor stickiness in insurance is measured by persistency ratio. A higher persistency ratio indicates more number of policyholders keeping the policy in force after policy anniversaries such as first year, second year, fifth year, etc, by making regular premium payment.

Customer education initiatives, engaging analytics and need-based selling are leading to an improvement in persistency across cohorts, says Sanjay Tripathy - senior executive vice president - marketing, analytics, digital and e-commerce at HDFC Life. Though aggregate numbers linked to financial year 2015-16 for the entire industry are a few weeks away, during the year ended March 2015, Rs 2,14,398 crore worth of renewal premium was collected by the industry as against Rs 1,93,862 crore during the fiscal 2013-14, as per Life Insurance Council.

Asked why customers fail to renew policies, Tripathy says, "Policyholders fail to renew due to a mix of factors - change in their financial conditions or migration to alternate products. A few customers may also have a little dissonance with the product purchased."

Agents not being able to achieve the targets and thus falling out of the race too impact renewals. Out of 19.76 lakh agents, 60,781 were terminated between April 1 and 30, 2016.

Though insurers have been able to make strides in the second year renewals, aging policies is a concern. For instance, Canara HSBC Oriental Bank of Commerce Life Insurance recorded a 13th month persistency of 71.0% at the end of March 31, 2016, a steep jump from the 65.7% seen at the end of the fiscal 2014-15. But the 61st-month persistency continues to ail at 29.5% for the year ended March 31, 2016 vis-a-vis 37.4% clocked during the previous year. Similarly, the 13th-month persistency for DHFL Pramerica Life stood at 50.47%, based on premium as on December 31, 2015. However, the ratio drops to 11.99% for the 61st month, marginally higher than a year ago.

"Having 30% of our customers not renew the policy is not a happy situation. So, this year starting June we wouldn't issue a policy unless the customer answers the pre-issuance validation call. We would re-assess whether the customer is buying the policy for the right purpose and only then would the policy be issued. We are able to establish a contact and get responses from nearly 80-85% for pre-issuance validation," says RM Vishakha, MD & CEO of India First Life Insurance.

Asked whether mis-selling needs to be nipped in the bud to improve investor confidence, Tripathy of HDFC Life says, "Mis-selling isn't good for either us or our customers and we believe this needs to be stopped at the customer on boarding stage - apart from the product brochure & proposal forms where customer has a chance to understand the product features and requirements, a verification process independent of the originating channel is very useful."

Insurers expect the persistency ratio to further raise over a period as consumer awareness about the protection requirements has enhanced. There are steps the industry is taking to improve the ratio. To assist insurance policyholders affected by a bad economic patch, India First Life is mulling a different payment strategy. "Flexibility in premium payment is another option we are exploring.

But the idea is at a nascent stage, where we are exploring use of wallets for micro savings and later facilitate premium payment. This would help customers who don't have a regular stream of income and due to a bad month or a quarter of business lose out on paying the full year's premium," reveals Vishakha.

Better payment options too are critical to renewals. As per ICICI Prudential Life Insurance, more than 50% renewal payments during the year 2014-15 were made through websites and other electronic modes.