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ANNUAL REPORT 2011-12
BOX ITEM 2
PERSISTENCY OF LIFE POLICIES AND SERVICING OF ORPHAN POLICIES
Life insurance policies are generally of long-term in nature. As such, in the interests of all parties, i.e., the policyholders,
the intermediaries and other stakeholders, the insurer has to put in place measures to ensure that the policies remain
in force all through their full term.
The following are some of the issues that normally determine the persistency of life insurance policies:
Suitability of product: As the life insurance policies are generally long-term, in the event a product is found not suitable
at a subsequent point in time or the product portfolio that is subsequently available in the market offers a different stream
of benefi ts, there is a possibility of discontinuing the existing policies. While some factors are certainly extraneous,
offering a suitable life insurance product by carrying out an appropriate need analysis of the prospects signifi cantly
improves the persistency.
Extraneous factors of policyholders: Owing to the changes in the social and economic profi le of policyholders, there
may be an impact on the ability of policyholders to continue the payment of premiums. This in turn results in affecting
the persistency of the life policies. Despite these factors being totally extraneous, there is a role for insurance intermediaries
in mitigating the levels of persistency even in these categories of policyholders.
Post Sale Policy Service: Absence of effective post sale policyholders’ service may also trigger discontinuance of
premiums. While largely insurers have a role in putting in place post sale policyholders’ service within the reasonable
reach of policyholders; in the Indian scenario, historically, Insurance Agents play a pivotal role in rendering post sale
policyholders’ service thereby ensuring persistency of life policies.
The data on persistency trends in the Indian life insurance Industry for the past three years (2009-10 to 2011-12) is given
in the Statement No. 28. As refl ected in the Statement, it is observed that:
The 13 th month persistency has by and large improved over the last three years across companies.
The 25 th month persistency too has improved over the last three years for two thirds of companies.
The 37 th month persistency decreased for majority of insurers in 2010-11, but staged a recovery in 2011-12. Nearly
for half of the companies, this ratio has decreased in 2011-12.
With some exceptions, the 49 th and 61 st month persistency went down both in 2010-11 and 2011-12.
The persistency ratios generally went down as the duration of the policy advanced.
In this context, the Authority was of the considered view that insurance intermediaries have an effective role in improving
the persistency rates both at the stage of pre-sale process, by way of carrying out a proper need analysis of prospects
and during post-sale stage, in rendering effective policy service. Accordingly, the Authority issued Circular (No. IRDA/
Life/GDL/GLD/217/09/2011 dated 20 th September, 2011) on the minimum requirements on persistency, which has been
kept as 50 per cent (to be reckoned in terms of number of policies). These persistency requirements have been made
applicable to both Individual insurance agents as well as corporate agents.
As indicated above, one of the factors that infl uences the persistency of life policies is the post sale service that is
rendered on demand and in time to the policyholders. As life insurance policies are long-term in nature the changing life
stages may at times warrant effecting a concomitant and simultaneous modifi cation that are in the nature of policy
alterations / services which also propels in reinforcing the higher persistency levels of life insurance policies. In India,
individual agents significantly contribute to the life insurance industry both by garnering the business as also in conserving
the same.
However, it is noticed that a large number of agents discontinue their respective services with life insurers leaving a
number of policies unattended without any personalized services. These life insurance policies, at times, deserve a
personalized service in order to ensure continuity of premium payments. These policies, which may be referred to as
‘orphan’ also burdens the insurance company owing to a drop in persistency, inability to offer a personalized service
that may affect the image amongst the insuring public and outweighs the costs in establishing other alternate service
arrangements.
Under these circumstances, IRDA considered that it is important and in line with the interests of such orphan policies,
that a system deserves to be instituted, where the orphan lapsed policies are assigned to the existing agents for rendering
post sale policy service in consideration for appropriate remuneration. It is envisaged that this system will offer a facilitative
approach to the life insurers for allotting the lapsed orphan policies without diverting the business resources for establishing
other alternate arrangements exclusively for the purpose of rendering post sale service to a relatively limited segment
of policyholders. Towards this end, the Authority has issued guidelines for servicing of Orphan Policies vide its Circular
No. IRDA/Life/GDL/Agn/134/06/2012 dated 13 th June, 2012.
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