Mumbai (Maharashtra) [India], March 6:In the year 2023, more people have been saying goodbye to their life insurance plans and either surrendering or allowing their policies to lapse by not paying subsequent policy premiums. As per the data of insurance regulatory and other large life insurance companies recent release of data shows that 50% of the life insurance policies are not seeing their maturity. The good life which has no background of any past illness are dropping from the insurance by either surrendering their policies or not renewing it. This is an alarming situation for both insurers and underpenetrated insurance market like India which stands at 2% in Indian as compared to more than 60% insurance penetration of World average and up to 100% in some of the developed countries.
Why the sudden surge? Well, it's a mix of things like prices going up (inflation) and over selling or mis-selling of policies. Because of increasing awareness in major cities and metros in India about the other asset classes which are delivering more returns than an endowment life insurance policy which delivers only 4.5% of the returns at the end of the maturity, because of this people are moving towards term policies rather than endowment policies. Endowment policies promises returns at the end of the maturity has been remained as a major saving instrument for people across India besides covering risk is losing its sheen and more and more people are surrendering these policies.
Recent release of data by IRDAI, the life insurance sector paid out a total of Rs 4.96 lakh crore in benefits, which is about 64.08% of the net premium. Here's the kicker, benefits paid due to surrenders or withdrawals shot up by a whopping 25.62% to Rs 1.98 lakh crore. The public sector insurers took the lead, making up 56.27% of the total, while private insurers covered the rest. What's more, out of all the surrender benefits, 62.51% came from private insurers' unit-linked policies, and the public life insurer chipped in with 1.56%.
Also, IRDAI data suggests that total life insurance for the first-year individual premium has come down by 7.03%, whereas life insurance policies are just grown by 0.68%, when compared to last year Dec, 2023.
Rajiv Agarwal, Co-founder of Integrated Risk Insurance Brokers explains that “typically, a decrease in the first-year premium may indicate that fewer new policies are being sold or that people are buying less expensive policies. However, if the number of policies sold is still growing, it could suggest that more people are entering the market but choosing less expensive options.
If the people buying these new policies are satisfied with their coverage and continue to renew them in subsequent years, the persistency ratio could increase. This is because even though the initial premium is lower, more people sticking with their policies over time contributes positively to persistency.
Conversely, if the decrease in premium results in people not renewing their policies after the first year, the persistency ratio could decrease. This might happen if the decrease in premium leads to policies with less comprehensive coverage, or if customers are dissatisfied with their policies for any reason”
Good life going out of insurance in India is not good for insurance companies as the claim rates will go up substantially. As the insurance is for everyone, if a greater number of policies are dropped mid-way or lapsed there is definitely increases the risk for dependents whose insurance policies are lapsed.
So, there is a need for an intervention from all the stake holders to increase the persistency ratio to make the whole insurance as a win win situation.
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