Persistence pays

Policyholders gain by staying with an insurance policy, and insurance companies benefit by offering better prices and making it possible for the policyholders to stay on.

Print Edition: December 25, 2008

Persistence, they say, is the twin sister of excellence. One is a matter of time, the other, a matter of quality. Both life insurance companies and policyholders are learning this now. A recent report by the Insurance Regulatory and Development Authority (Irda) analysing lapsed policies explains the aphorism. Policyholders gain by staying with an insurance policy, and insurance companies benefit by offering better prices and making it possible for the policyholders to stay on.

The various factors for policy lapses include the mode of premium payment, the duration since the policy’s inception, the policy type and the type of underwriting. Most policyholders understand that it is profitable to continue with a policy through its tenure or till the policy reaches a paid-up value, when they can terminate it and receive a surrender value. This depends on the type of policy, the year in which one decides to terminate it and the kind of penalties charged.

Lapse rate for linked plansThe Irda report offers a wealth of data that can be used to best effect by insurance companies, brokers and agents. Among other things, the report details the lapse rate over a five-year period. The industry lapse rate increased from 5.62% (2002-3) to 7.8% (2004-5) and then fell to 6.64% (2006-7). Policies are broadly classified as unit-linked and nonlinked. For the former, the lapse rate in the first year has reduced dramatically over the years, thanks to the high front-end loaded cost structure and the high allocation charges.

Another interesting nugget in the report is that the lapse rates for nonmedical policies are higher than for medical policies. Among other things, this seems to indicate that those taking medical covers are very serious about protecting themselves and their dependants.

For insurers, especially new players, this kind of data is very useful. The estimation is beneficial for pricing insurance products, valuation of liabilities and comparison of experience with other countries and for new product development. Also, by identifying the factors influencing the lapse rates, companies can change pricing parameters and marketing strategies of the products or policies that are ready to be launched.

The study helps the policyholders because of the possibility of gains from select ‘with profit’ policies (that declare bonus). They get a cash reward for staying with the policy through the tenure. They can also figure out why some policies might not work for them in the long run. Most importantly, they can also see why it makes sense for them to continue with a policy that gives their financial dependants adequate protection.

— Narayan Krishnamurthy


“Indian banks are not the right size to meet an economic growth of 8-10%. Our financial system needs size and scale.”
— K.V. Kamath, CEO, ICICI Bank

“A retail investor should not leverage himself (invest borrowed money) and come into the equity market.”
— C.B. Bhave, Chairman, Sebi

“The less persuaded the investors are that the government will speed up reforms, the more damage breaches of security will do to investor perceptions.”
— Subir Gokarn, Chief Economist, Standard & Poor’s, Asia Pacific

“We are seeing a global economic downturn of the kind not seen in 70 years. India is now in danger of being drawn into it.”
— Pradip Shah, Chairman, IndAsia Fund Advisors

Source: The Hindu, The Business Standard and Reuters


Intelligent ATMs

What the machines can do

• Personalise your transactions to cut the time by 40%.

• Deposit cash for which receipt will be issued immediately.

• Credit deposited amount immediately to the account.

• Detect counterfeit currency notes.

• Help banks sell specific products depending on customer profile.

Simply greeting by name is not enough. An intelligent ATM ought to know your preferences too, be it language or the fast cash amount typically withdrawn. That’s exactly what the recently unveiled HDFC Bank ATMs promise to do. Sometime next year, the machines will also be upgraded with the technology to identify counterfeit currency notes that you may deposit inadvertently.

By allowing you to personalise your transaction settings, these ATMs cut down the number of screens you encounter while withdrawing money, from eight on an average to just three, claims the bank. Rahul Bhagat, country head for retail liabilities, marketing and direct banking channels, HDFC Bank, says, “This initiative will reduce the time taken for cash withdrawal by 40% since 45% of our customers use ATM services, 80% of them withdraw the same amount every time and 97% of ATM transactions are done either to withdraw cash or inquire about account balances.”

It is a win-win situation for banks too. A 10% rise in the usage of alternative banking channels translates into around 5% reduction in the transaction costs of the banks.

— Rakesh Rai

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