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What is the Persistency Ratio and Why Does it Matter to the Health Insurance Sector?

Persistency Ratio in Health Insurance: Persistency ratio is an important aspect you need to check when buying health insurance. Find out more here on this article about persistency ratio

  • Mar 15, 2021
  • 4,849 Views

Key takeaways

Reasons for low persistency ratio

  • The insurance provider doesn’t offer excellent post-purchase support.
  • The insurance has a low ratio of claims settled.
  • Other recently released and enhanced goods are available.
  • People are forced to cancel their insurance policies because of the nation’s unstable economy to save more money.

When you buy a health insurance plan, there are several aspects that you must consider. These generally include the claim settlement ratio, the client’s reputation, the features of the plan, the premium and coverage amount, etc. Another important factor that plays a vital role is the persistence ratio. Here’s everything you need to know about the persistence ratio and its importance to the health insurance sector.

What is the persistency ratio?

The persistency ratio is the number of total policies that an insurer has to the policies that are renewed or in force. So, for instance, an insurance company sells 100 policies, but out of these, only 80 policies are renewed or active at a given time. The persistency ratio, in this case, will be 80:100.

The persistency ratio shows the number of policyholders who are paying premiums for active plans. This ratio can be calculated for a single financial year or a series of years.

Why is the persistence ratio important?

The persistence ratio is important for insurance companies as well as customers. Here’s how:

1 Importance of persistency rates for insurance companies: indicates the faith of a customer in the insurance provider. If customers keep their health plan with a company for a long time, it implies a high customer satisfaction rate. A high persistence ratio highlights the company’s credibility, as its customers are willing to stick with them for a long time.

A high persistency ratio can also attract new customers to a company, and the insurer benefits in monetary terms. The more customers an insurer has, the higher the inflow of cash. This adds to the overall growth of the company and promotes long-term financial gains.

2 Importance of persistency rates for customers:

Since insurance often serves as an investment product, a high persistency ratio is extremely beneficial for customers. The longer they stay invested in the plan, the longer they can avail of tax benefits. Moreover, since the health insurance policy offers them financial protection against the costs of medicines and treatments, the insurance coverage doubles up as their emergency fund. They always have a financial cushion to fall back on, and they end up saving more money in the long run.

Moreover, when customers surrender their policy, they lose their coverage and pay surrender charges. Not only does this leave them unprotected, but it also results in considerable losses. A customer with a high surrender rate can find it harder to purchase insurance in the future. Most insurers see such customers as unreliable. With a negative experience in the past, the customer too is likely to avoid buying insurance in the future.

What are the reasons that lead to a low persistency ratio?

1 Here are some common reasons behind a low persistency ratio:

2 bsp;nbsp; The insurance company does not provide good after-sale services.

3 The claim settlement ratio of the insurer is low.

4 The customers are not satisfied with the features of the policy.

5 There are other new and improved products in the market.

6 Economic instability in the country forces people to surrender their insurance plans in favor of more funds.

How is the persistency ratio calculated?

It is either determined by the annualized premium or the quantity of renewed policies. A single financial year or a string of financial years may be used to determine the ratio. The 13th month of the policy term is used to compute a policy’s persistency ratio during the first year. In a similar manner, it will be determined for 2 years in the 25th month, for 5 years in the 61st month, and so on.

Does Persistency Ratio Matter for Online Buyers?

Certainly, it should. The persistence ratio actually counts a lot more to online life insurance customers. Since there is no financial counsellor to act as a middleman between you and the business, the insurer must continue communicating with you. The insurer has a responsibility to clarify any ambiguities in the policy and provide you with information on how to maximize the benefits.

Another crucial aspect is that, in the event of a claim, your family will need to communicate directly with the insurer. The 24-hour helpline is therefore crucial for you.

Conclusion

While no one can predict the future, it helps to pick a dependable insurer to reduce the chances of surrendering the policy at a later stage. Do the due diligence needed and ensure you check and compare the persistency ratio before investing.

Kotak e-Term Plan

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Features

  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492

T&C

- A Consumer Education Initiative series by Kotak Life

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