In India in all there are 24 life insurance companies. Life Insurance Corporation of India (LIC), which is a Government of India-owned corporation, has nearly 72.6% of all total life premiums and hence dominates the entire life insurance market. Out of the total 23 private life insurers, 15 private life insurers have less than 1% of the overall life insurance market. A few of the less significant, private life insurers are trying to find niche position markets, cost efficiencies and also trying to expand the market. Still nevertheless, most of them have low market share, persistency ratios and huge operating expenses. Hence, most of the smaller life insurers face a survival risk in the Indian life insurance market. Reason being, their low market share, persistency ratios and high operating expenses.
Today the life insurance industry is suffering from high policy lapsing rates all around the world. For instance, the U.S. market, which is the world’s largest insurance market and also the barometer of global insurance markets, witnessed a deteriorating life insurance policy growth rate as well as a steady lapsing rate from 2000 to 2010. Together, these two situations have generated a problematic persistency trend for insurers on a worldwide scale. One major reason for this trend is that the current practices for insurance policy management are outdated, obsolete and ineffective for today’s current insurance climate. Thus, we believe a new framework is required to address widespread lapsing rate that can help energize and boost the industry with novel innovative techniques.
This article offers a three-pronged approach to help life insurers worldwide to manage and improve lapsation rates by:
- Identifying the key lapsation challenges that the insurers face as they toil hard to manage lapsation.
- Introducing the persistency management framework, for insurers, which would benefit and help them by designing better insurance products that can more accurately predict the changing industry trends and position appropriate right products to the right customers, thus serving them better than before.
- The key problems infecting the life insurance companies in India are.
- Irregular sales periods – The majority of life insurance policies are only bought in the last quarter of a financial year considering Insurance only as a tax-saving instrument
- Lack of proper and timely communication to policyholders
- New and multifaceted emerging competition in online insurance portals
- High churn and mix in the sales force
- Departments working in bad storage kind silos
- Lack of proper data collection & management
- Overlapping channel strategies
- Legacy systems designed for human intervention
Smart customer handling is crucially essential to improvise the customer relationship and also to understand their propensity to lapse, rooted on their economic profile, risk identification, life-stage and other factors.
We now know the factors that on an average affect policyholder lapse rates.
- product type and nature,
- distribution channel (or specific individual source of business),
- the number of recent contacts (with the insurer or agent) socioeconomic characteristics of the customer (like the age and gender),
- any correlation to policy options or guarantees,
- the presence of product features (like the policy riders),
- the policy duration (current and outstanding) and the policy term,
- the customer’s other policies,
- Macroeconomic and tax considerations (in particular the tax deadlines and thresholds).