Life insurers raise policy value to keep life going

Mumbai: Life insurers are raising the minimum and average value of policies in a bid to improve persistency and reduce lapses, as low-value policies tend to be more prone to early discontinuation.

State-run Life Insurance Corporation of India said its average ticket size has increased by 23% in the June quarter compared to the same period last year, driven by changes in product structures. HDFC Life and SBI Life have also recorded an increase in average policy value.

"We find that lower ticket-size policies generally have lower persistency," the LIC management said in a post-earnings call. "The 13th-month persistency ratio has dropped slightly this quarter because the cohort being measured belongs to the earlier regime of smaller-ticket policies. We are making efforts to contact and revive these policies so that persistency improves over the term."

In February 2023, the government taxed income from non-ULIP insurance policies with annual premiums above ₹5 lakh to curb HNI tax arbitrage. Following this, insurers have reported up to 100 basis points drop in 13th-month persistency ratios.

Persistency, a key industry metric that measures the percentage of policies still in force after a certain period, is closely watched by investors and regulators as it reflects both customer satisfaction and the quality of sales. Higher persistency helps insurers in reporting long-term profitability by spreading the acquisition costs over a long duration and reducing the strain on capital.

The premium amount for a policy depends on the age of the insured, but the mandated rise in minimum sum assured has effectively lifted the premium base across core product lines for insurers. LIC expects the move to not only improve persistency but also enhance margins, as higher-value policies are often associated with more financially stable customers and better renewal rates.

SBI Life Insurance has also reported an increase in ticket sizes in retail protection products after revamping its portfolio to target affluent customers, even as overall growth in the segment lags its lumpy group business gains.

The insurer, which posted 12% growth in retail protection premiums in the June quarter, introduced a new term plan two-three months ago with the cover starting at ₹2 crore, the management said in an earnings call. The move is part of an approach to boost margins. Its new business margin was 27.2% as of June 2025.

HDFC Life saw higher average policy sizes in the first quarter, boosted by demand for select unit-linked and participating products. The insurer slowed new policy growth in certain lower-ticket segments as 13-month persistency fell about 1% as share of large-ticket policies fell following tax changes during the previous year.