Understanding the persistency ratio is essential for policyholders and insurers alike, as it reflects the health and credibility of a life insurance provider. This metric measures the percentage of policyholders who continue paying premiums beyond a specific period, highlighting customer satisfaction and the insurer’s ability to retain policies.
 

In this article, explore what persistency ratio means, its importance for policyholders, how it is calculated, and the factors that influence it in the Indian insurance landscape.

• Definition: The persistency ratio in life insurance measures the percentage of policies retained over specific periods, reflecting customer satisfaction and insurer reliability.
• Significance for policyholders: A high persistency ratio indicates credible insurers, effective policies, and better customer service.
• Calculation: It is calculated as the percentage of active policies divided by the total policies sold during a specific timeframe.
• Key influencing factors: Includes policy structure, customer service quality, economic conditions, ethical sales practices, and premium affordability.
• A strong persistency ratio benefits both policyholders and insurers, ensuring trust, value, and long-term growth.

The persistency ratio in life insurance is a critical performance indicator that measures the retention rate of policies over time. It represents the percentage of policyholders who continue paying premiums after the first year or specific intervals, such as five or ten years.
 

This ratio serves as a marker of customer trust and satisfaction, indicating how effectively an insurer delivers value to its clients. A higher persistency ratio suggests that policyholders are satisfied with their policies and find them beneficial enough to sustain. Insurers with strong persistency ratios often enjoy better financial stability and reputation in the market.

The persistency ratio is not just an industry metric; it is also an indicator of the insurer’s reliability and policy quality from the policyholder’s perspective.
 

Why it matters for policyholders:

• Policy value assessment: A high persistency ratio indicates satisfied customers, ensuring you’re likely to receive value from your policy.
• Insurer credibility: It reflects the financial health and reliability of the insurance company, giving you confidence in their services.
• Better customer service: High ratios often correlate with responsive customer support and transparency.
• Product effectiveness: Persistency ratios suggest that the insurer offers policies tailored to long-term financial needs.
• Industry trust: Regulatory bodies and industry experts use this ratio to gauge insurer performance, helping you make informed choices.

The persistency ratio is calculated as a percentage of policies that remain active (i.e., for which premiums are paid) over a specified period compared to the total number of policies sold during the same time frame.
 

Formula:
Persistency ratio = (Number of active policies/Total policies sold) × 100
 

Persistency is often measured at various intervals, such as 13th month, 25th month, and 61st month, to evaluate long-term policy retention. This data helps insurers refine their offerings and services.

Several factors impact an insurer’s persistency ratio, ranging from policyholder behaviour to the insurer’s service quality.

Key influencing factors:

• Policy structure: Simple, transparent policies with flexible premium options are more likely to be retained.
• Customer service: Prompt support and effective communication encourage customers to stick with their policies.
• Economic conditions: Economic downturns or job losses can reduce policy retention rates.
• Product suitability: Policies aligned with customer needs see higher retention.
• Marketing and sales practices: Ethical selling practices result in better customer satisfaction and retention.
• Premium affordability: Policies with manageable premiums are more likely to be continued.
• Regulatory environment: Strong regulations enhance trust and policyholder confidence.

The persistency ratio in life insurance is a vital metric that reflects both insurer reliability and customer satisfaction. It helps policyholders gauge the effectiveness of their insurer’s offerings and ensures informed decision-making. For insurers, a strong persistency ratio signifies long-term growth and trust. Always consider this ratio when selecting a life insurance provider.