Insurance firms see surrenders decline in Q1, brace for trend to change

Bajaj Allianz Life Insurance has seen surrenders worth Rs 107 crore in Q1FY21, compared to Rs 298 crore in the same period last year
Life insurers are scrambling to encourage customers from not surrendering their policies, reacting as the coronavirus pandemic devastates the economy and limits incomes. Insurers the number of policies surrendered has fallen, but that trend may not last.

Life insurers, in order to avert surrenders, provide loans against policy, or bridge loans, to policyholders. Such loans come at a cheaper rate of interest than personal loans and they can be repaid whenever the policyholder wants. Typically, these loans are available against traditional policies, which generally attract high surrender charges.

“Surrenders have not risen (for us) but loan against policy has seen an uptick. We have disbursed around Rs26 crore under loan against policy, thereby arresting around Rs100 crore worth of surrenders,” said Tarun Chugh, managing director (MD) & chief executive officer (CEO), Bajaj Allianz Life.

“Stress is largely more in unit-linked insurance plans (ULIPs) because in the case of traditional policies, we can lend directly against the policies as it acts as a collateral.”

Bajaj Allianz Life Insurance has seen surrenders worth Rs 107 crore in Q1FY21, compared to Rs 298 crore in the same period last year. It has also disbursed more than Rs 26 crore to over 2,000 policyholders in Q1FY21 as loans against policies to avert surrenders.

“In terms of surrenders in Q1FY21, we have seen a drop of 50 per cent, possibly due to the lockdown and branches being closed in various parts of the country. Current trends in surrenders are in line with what we have seen in the past,” said Vibha Padalkar, MD & CEO, HDFC Life.

“Loans against policies can offer liquidity to customers and help them manage their cash flows. We have increased our customer engagement to provide loans against policies. We are also in discussions with the regulator for allowing loans against policy for the unit-linked segment,” she added.


Loan against policy is only allowed in traditional products. Allowing it for ULIPs will allow the customer to deal with short-term liquidity issues.

Ashish Rao, executive vice-president at ICICI Prudential Life Insurance, said: “For Q1FY21, there has been a significant drop in surrenders despite the challenging environment. However, there has not been any noticeable increase in customers wanting to avail loans against policies in the last few months. So far for FY21, our customers have availed loans against their policies to the tune of about Rs 44.4 crore against Rs 226.6 crore in FY20.”

Echoing similar sentiment, companies like IDBI Federal Life Insurance and IndiaFirst Life Insurance said they, too, have seen a decline in surrenders in Q1FY21, indicating that policyholders are more concerned about their well-being amid the pandemic.

“The numbers of policies surrendered has fallen by around 43 per cent during March 2020 to July 2020 as compared to last year,” said Lalitha Bhatia, chief operating officer (COO), IDBI Federal Life Insurance. “The segment, which continues to see majority of surrenders in this period, is ULIPs.

“We have observed lower surrenders as compared to the previous year. Loan against policies has been offered as an alternative to surrenders. In fact, we have reduced the interest charged on loan against a policy and we expect loan against policies to pick up over the next few months,” said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance.

Despite surrenders going down, insurers have seen their persistency numbers drop across cohorts as customers utilized the grace period in making renewal payments.The insurance regulator had granted a grace period for paying premiums to the policyholder who were struggling with cash flow issues due to the pandemic in the initial phase of the lockdown. This was seen as similar to the moratorium granted banks on repayments but it was devoid of any penalty.

“Among the segments, decline was seen in persistency in ULIPs, while improving trends were observed in protection. However, most insurers indicated that renewal trends were gradually picking up and better trends would be seen in the coming quarters. 13th month persistency decline was high for SBI Life, followed by HDFC Life”, said a report by Motilal Oswal Institutional Equities on the life sector.

“The extension and the inclination of customers to conserve cash led to some impact on the renewal collections in the initial months. While we continue to see some delays in collections, we are seeing improving trends month-on-month. Our persistency ratios have been largely stable in Q1FY21, and we saw a growth of 24 per cent in renewal premium”, Padalkar added.

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