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Persistence pays, literally for the Life Insurance sector

Prasanna Rao

Director of Marketing, Ezetap Mobile Solutions Pvt. Ltd.

Ways to tackle the industry challenge of customer retention and decrease renewal drop significantly


At 3.67 lakh crore of premium collected in 2015-16, the life insurance industry has grown phenomenally (12%)[1]. Aggressive customer acquisition (first year premium grew by 22.53% in 2015-16) and emergence of new channels (online contributed 0.5% of new business acquisition of the industry) to reach new customer segments have been the main drivers of growth. At a macro level, new challenges/opportunities like the impact of technology (Insurtech and Artificial Intelligence) and new markets (cyber insurance) have emerged resulting in more avenues of growth[2].

Yet with insurance penetration (ratio of premium to GDP) at 2.7% in India, world average is at 3.5%, the Indian life insurance industry has a lot of catch up to do.

Customer is fickle

As the industry searches for ways to create high growth which is also sustainable, some answers lie within. Figures released recently by IRDAI proves this beyond doubt. Four out of every ten life insurance customers do not continue his policy beyond the first year. With less than one-third customers retained after five years, most life insurance companies are struggling with this leaky bucket.

Table[3] below shows company-wise persistency rate trend for the last 3 years

Persistency rate being a key indicator of the health of business, this table clearly establishes that most life insurance companies have to constantly invest in high cost new customer acquisition to drive their growth rates. In other words, their ability to retain customers has been limited till now.

Shift from customer revenue to customer life-time value

Increasingly, life insurers are preferring profitable, sustainable growth over top-line focused unprofitable growth. This change in focus means that insurers are driven more to maximise customer life-time value than a one-time revenue opportunity. This fundamental shift in approach has resulted in

  1. Focus on higher premium customers who are serious buyers (average ticket size has increased from Rs.25,000 to Rs.50,000 in the last 4-5 years)
  2. Reaching new customer segments
  3. Strict selling policies
  4. Robust on-boarding process
  5. Easy renewals with reminders and multiple payment options

Most customers of life insurance lapse/do not renew if are sold wrong, unhappy with the service or simply forget to make the payment. In most instances, the industry has already addressed/started addressing issues of wrong sales and unhappy customers. One significant opportunity available yet fully untapped, is the use of technology to ensure easy renewals and multiple payment options.

Payment renews the relationship

Rapid adoption of digital payments indicate that customers expect an omni-channel, hassle-free payment experience anytime, anywhere and via any mode. A well thought out payment experience can delight a customer and increase renewal rates significantly or conversely reduce drop rates significantly.

Currently, most insurance companies have tried to achieve this through an army of collection agents and an extensive network of branches. This process has been relatively inefficient and costly as both require customers to make a significant effort.

A possible and efficient solution to this problem is Ezetap’s REMOTE PAY. With Ezetap’s REMOTE PAY, insurance companies or their agents can send payment collection requests to their customer via SMS or an email, irrespective of customer location. This enables higher productivity and cost efficiency by converting a possible cash/cheque payment to a definite digital payment.

Digital is persistent

Digital payments have the power to be a strong differentiator for life insurance companies. As payments become the only action point between life insurer and customer during the renewal cycle, a well-executed payment experience can lead to a significant increase in persistency rates and profitability.

[1] All statistics from Handbook of Indian Insurance statistics 2015-16

[2] Source: https://www.pwc.com/us/en/insurance/publications/top-insurance-industry-issues-2016.html

[3] www.livemint.com