Insurers in India have been seeing an increase in the number of policies that have been allowed to lapse.
Recent data released by the Insurance Regulatory and Development Authority (IRDA) in India has revealed that life insurance companies are experiencing a trend with an increase in policy lapses and forfeitures throughout the last financial year.
This information was revealed within the authority’s annual report for the most recent fiscal year.
Equally, the Life Insurance Corporation of India (LIC) a public sector insurer, revealed that it had experienced a lapse ratio of 5 percent during the most recent financial year. On the other hand, the report from twenty three insurers in this sector reported an average lapse ratio of 24 percent.
This was a notable rise over the lapse ratio that was seen by life insurance companies last year.
Last financial year, the LIC lapse ratio had been 4.9 percent. Similarly, the private sector reported that its average lapse ratio had been 22.2 percent. This figure represents the total percentage of life insurance policies that are allowed to lapse before they have reached their maturity.
A policy is considered to have lapsed if the customer does not make the life insurance premium payments within the grace period that is identified within the terms of that agreement.
According to the IDIBI Federal Life Insurance chief executive officer and managing director, G.V. Nageswara Rao, “The main reasons for non-linked business to lapse may include lack of liquidity of a policyholder in which case, he chooses to lapse the policy before maturity. Another reason might be the mismatch between the policyholder’s requirement and actual policy, in which case, he may forgo the benefits of sum assured.”
This is a trend that was seen the year before in the life insurance sector, as well. In 2010, the lapse ratio for LIC had been at 4 percent. However, the last couple of years have shown considerable improvement in the private sector, as insurers reported a lapse ratio of 30.2 percent that year. This shows that the trend is inconsistent in the public and private sectors when examined over multiple years.