Life insurers take cover in loans to avert surrenders, improve persistency

With lack of funds being the main reason for people not renewing their policy, insurance firms are providing loans and using tech to find such customers

Of the many parameters to gauge a life insurance company’s performance is persistency, especially 61st month persistency. In insurance parlance, this means policies that are retained after five years. This is one of the most important metrics that drives a firm’s profitability.

So far, Indian life insurers have struggled to boost their persistency levels with even the top four private life insurers’ 61st month persistency hovering around the 50 -55 per cent mark. This means of every 100 policies issued by the life insurers, only half are renewed after five years.

A low persistency coupled with extremely low penetration makes India one of the most under-insured countries in the world. Now, the insurers are increasingly looking to improve their persistency level as focus on term products has picked up pace.

Among various reasons for policyholders surrendering their policies, short-term need for funds is perhaps the biggest trigger. To remedy the situation, life insurers have worked out a solution wherein they provide short-term loans, known as bridge loans, at a cheaper rate than personal loans to policyholders against their policies which can be repaid whenever the policyholder wants.

“If customers have any short-term finance needs, the company can give a loan against the policy, unless it’s a unit-linked product. We provide customers with a bridge loan,” said Vibha Padalkar, CEO of HDFC Life Insurance.

“The consumer can avail loans any number of times throughout the policy term as long as he has enough money saved in terms of fund value. It doesn’t turn into non-performing asset (NPA) for us as it is a loan to value,” she further said.

Ashwin B, Chief Operating Officer, Exide Life Insurance, said, “To deter surrender of policies in case of requirement of funds, our customers can avail of loans in our traditional policies, which have an in-built loan feature.”

Manik Nangia, Chief Operations Officer, Max Life Insurance, said, “Max Life provides loans on traditional endowment plans to enable policyholders manage their immediate financial needs instead of forgoing their long-term policy benefits by surrendering the policy.

To policyholders, who do not wish to opt for loans in times of a financial crisis, “we also offer the convenient process of surrender of paid up additions” to retain our policyholders, said Nangia.

Identifying such policyholders is the biggest challenge, but technology is helping the insurers in this. With the help of analytics, insurers are now able to scour any policyholder who is under stress or has the slightest intention of surrendering the policy before the prerequisite time.

“Through a lot of analytics and bots we have been able to scour any touch point. So, we have been a lot more proactive and also the roll out of loan against policy at our branches. Earlier, we were not using it as surrender aversion,” Padalkar said.

Ashiwn said: “We have developed an analytics-based persistency model which helps us to ascertain the likelihood of a customer paying the renewal premiums right at the onboarding stage. We run this model once again prior to the time of renewal payment due, by which we are able predict which customer is more likely to pay and within what timeframe.”

Another aspect the insurers are focusing on to drive their persistency numbers is selling the right product to the customer so that a scenario of surrendering policies doesn’t arise in the first place.

“From our product innovation to our sales force to our servicing experts and everyone else, each of them are being trained to help identify customer needs, and sell the appropriate life insurance product to them. When the buy-in from our customer on the product proposition is early on, then they are likely to stay invested in the product, whereby our persistency numbers, as well as our customer’s goals, are met,” said Kayzad Hiramanek, Customer Service & Operations, at Bajaj Allianz Life Insurance.

Nangia said: “Irrespective of the product form, the biggest mechanism for averting early surrenders is right selling.”

Loan issues 

• Bridge loans are advances provided by life insurers in the short term against policies
• Rates are cheaper than that of personal loans
• The consumer can avail loans any number of times throughout the policy term
• The loan doesn’t turn into NPA for institutions either as it is a loan to value
• Technology is used to identify policyholders who have the intention of surrendering policy