The persistency ratio helps to understand how persistent policyholders have been in renewing their policies each year. It is a vital indicator of the policy and insurance company’s performance. The higher the persistency ratio, the better it is.
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Before buying life insurance, you must look at several aspects. These include the company’s credibility, plan features, premium amount, coverage offered, claim settlement ratio, etc. Some other ratios, like the solvency ratio and persistency ratio, highlight the performance of the life insurance provider.
If a policyholder continues to pay the premium on time over a period, it reflects their satisfaction with the insurer. The persistency ratio helps you check this metric before investing in a life insurance plan.
Here is a guide with information on what persistency ratio in insurance is and persistency meaning for a customer.
The persistency ratio refers to the percentage of policyholders who pay their renewal premium. It is a benchmark for the quality of sales made by the insurer. Moreover, it highlights the commitment of a customer to renew the policy every year.
The persistency ratio is measured at different stages. For the first year, the calculation is done in the 13th month. For the second year, the 25 th month. For the third year, the 37 th month, and so on.
The persistency in insurance in the 13 th month measures the premium paid for renewal by the policyholder at the start of year two.
For example, Sunita purchased a policy in February 2021. She paid its renewal premium next year, due in February 2022, before March 2022. The policy is said to be 13 th -month persistent. But, if she does not pay the premium due in February 2023 by March 2023, the policy will be considered non-persistent for the 25 th month.
The 13 th -month persistency indicates policyholders' satisfaction with the insurer’s products and services, while the 61 st -month persistency signals loyalty towards the insurer.
A higher ratio implies that the existing policyholders are satisfied with the product portfolio, customer service, after-sales service, product utility, product returns, etc.
Persistency is vital for insurance companies and customers. Let us break it down for a better understanding.
