Persistency is one of the key criterion for measuring long term profitability and health of a Life Insurer. High persistency has a direct impact on top line and bottom line through higher renewal premium collection and lower customer acquisition costs. This also gives Life Insurers a stable customer base that can be tapped for cross sell opportunities. High persistency also signifies higher customer satisfaction through right matching of financial products with customer needs. Given such benefits Life Insurers place strong emphasis on identifying factors that lead to lower persistency levels and take corrective steps.
Data certainly can reveal answer to our problem. Firms are increasingly applying advanced analytics techniques to mine data for patterns, identify customers with high churn propensity and building propensity scorecards. These models are mostly built using internal data sources and have proven to be effective.
At the same time there are a lot of external data sources that can be combined and mined for insights in combination with internal sources. These external sources can prove to be really effective and improve predictive power of propensity algorithms. Let’s look at some of these.
Used by lending institutions to evaluate credit worthiness of a borrower. Reveals information about outstanding credit and any payment delays or defaults in past.
- Gives insights into payment capacity of a customer.
- Updated Contact Address improving contactability.
- Monthly or Yearly Income
- Outstanding credit with payment schedule: Net disposable income
Consumer Price Index (CPI)
Inflation Index released every month by RBI and captures month on month inflationary pressures.
- Identify segments that are sensitive to higher inflation. These can be households in certain geographies,income bands etc.
- Action: Stop sourcing of low value customers (low margin products, less future customer value), increased premium paying frequency that will divide premium payments reducing burden.
Source: RBI (Reserve Bank of India).
Market Share by Policies Sold
Increased market share of Life Insurers in states may signify increasing thrust of a Life Insurance firm to focus on certain geographies. This directly leads to increasing competition and with customer becoming more aware, might impact customer acquisition and retention.
- Did dip or improvement in market share in terms of policies sold in last one year impact persistency figures in next year?
- Is my 13th month persistency going down due to less marketing and distribution focus in that state or region?
- Action: Improving sales, marketing and customer outreach efforts in regions and states.
Source: IRDA filings of Life Insurers. At Valiance we have developed an index for market share that covers 23 private Life Insurers and can be used in model building and trend analysis.Note that there is delay in filings by Life Insurers.
Customer Proximity Index
Branch Proximity Index of Each customer by zip code. Branches represent important touch points for customers for policy servicing. Near is the customer base, better are the odds of favorable customer interaction and greater satisfaction. This index is compiled from all present branches of private Life Insurers in India.
- Am I losing customers that are nearest to me than rest?
- Action: Increasing focus on customers that are nearest. These customers can be tapped for cross sell opportunities at lower customer acquisition cost.
Source: Proprietary (Contact Us for Details)
There are more data sources than can be tapped i.e. Social Media, Web Blogs provided Insurers develop capabilities to collect and mine data. At the same time one needs to factor in cost of collecting and processing external data for use. We will talk about how Life Insurers globally are using External data for advanced analytics in our next blog. Stay in touch!