Why persistency is necessary in life insurance business?

Answer 1

To answer simply, persistency allows to know the customers retained.

Persistency can be calculated in terms of Insurance as

• First year persistency(Customers retained after end of first year after completion of grace period)
• Second year persistency(Customers retained after end of second year after completion of grace period)

and the calculation could go on till number of years the calculation is required.

Now insurance companies & IRDA seem to focus of 1st, 3rd & 5th year persistency.

Persistency calculation formula.

Persistency Formula = No. of Clients Paying the Premium / Net Active Clients * 100

Net Active Clients Formula = Total Clients - (Clients in Freelook + Surrender + Death)

In simple terms, Business sourced & customers retained after completion of specific period.