Life Insurers Boost Policy Values to Enhance Persistency Amid Regulatory Changes

In a strategic move to improve persistency and adapt to recent regulatory changes, major life insurance companies in India are reporting significant increases in average policy values. This shift comes in the wake of new taxation rules and aims to reduce policy lapses while maintaining growth.

LIC Reports Substantial Growth in Average Ticket Size

Life Insurance Corporation of India (LIC), the country's largest insurer, has reported a notable 23% increase in average ticket size during the June quarter compared to the same period last year. This growth is primarily attributed to changes in product structure, reflecting the company's efforts to adapt to the evolving market landscape.

Private Insurers Follow Suit

HDFC Life and SBI Life, two prominent private sector insurers, have also recorded increases in average policy values. This trend indicates a sector-wide shift towards higher-value policies.

Persistency Challenges and Strategies

LIC management highlighted that lower ticket-size policies generally have lower persistency. The company observed a slight drop in the 13th-month persistency ratio, which they attribute to earlier smaller-ticket policies.

The insurance sector faced a new challenge in February 2023 when the government introduced taxation on non-ULIP insurance policies with annual premiums above ₹5 lakh. As a result, insurers reported up to 100 basis points drop in 13th-month persistency ratios.

SBI Life's Growth and New Offerings

SBI Life Insurance demonstrated resilience in this changing environment:

• Posted 12% growth in retail protection premiums in the June quarter
• Introduced a new term plan with cover starting at ₹2 crore
• Reported a new business margin of 27.2%

HDFC Life's Performance

HDFC Life experienced higher average policy sizes in the first quarter, driven by:

• Increased demand for select unit-linked and participating products
• Slower new policy growth in lower-ticket segments
• A decline of about 1% in 13-month persistency

The life insurance sector's strategic shift towards higher-value policies reflects its adaptability in the face of regulatory changes and the ongoing challenge of improving persistency rates. As companies continue to innovate and adjust their product offerings, the focus remains on balancing growth with sustainable, long-term customer relationships.