Breaking Insurance Before 2 Years... Warning on Contract Retention Management (Comprehensive)

13th and 25th Contract Retention Rate Decline

Likely to Drop Further Due to COVID-19 Situation

[Asia Economy Reporter Oh Hyung-gil] The insurance policy retention rate, an indicator of insurance companies' customer management capabilities, has been found to be significantly declining. As the number of consumers maintaining their policies for more than two years decreases, concerns are rising about the deterioration of insurance companies' soundness as well as the weakening of their core driving force.

In particular, due to the COVID-19 pandemic, insurance retention rates are expected to decline further this year, highlighting the urgent need for better policyholder management.

According to the insurance industry on the 24th, the insurance policy retention rates of life and non-life insurance companies mostly dropped significantly compared to the previous year.

The insurance policy retention rate refers to the percentage of policies maintained without cancellation after the initial contract and is used as an indicator to assess incomplete sales rates, consumer satisfaction, and contract management capabilities.

The 13th (25th) installment retention rate refers to the percentage of contracts where insurance premiums have been paid 13 (25) times monthly after the contract was signed. A lower retention rate indicates frequent cancellations before the policy reaches 1 (2) years.

While the 13th installment retention rate slightly declined or remained stable, the 25th installment retention rate dropped sharply. As of the end of last year, Samsung Life Insurance's 25th installment retention rate was 60.98%, down 5.22 percentage points from 66.20% the previous year. Since recording 70.00% in 2017, the downward trend has continued steeply. However, the 13th installment retention rate slightly improved from 81.24% to 81.43%.

Hanwha Life Insurance and Kyobo Life Insurance also recorded 25th installment retention rates of 60.13% and 63.92%, respectively, down 2 to 4 percentage points compared to the same period last year. Notably, NH Nonghyup Life Insurance's 25th installment retention rate fell nearly 10 percentage points from 71.72% in 2018 to 61.79% last year.

The situation is similar for non-life insurers focusing on long-term insurance sales. Samsung Fire & Marine Insurance's 25th installment retention rate decreased by about 5 percentage points from 66.82% to 61.87%. Hyundai Marine & Fire Insurance, KB Insurance, and Meritz Fire & Marine Insurance, which had retention rates above 70%, also dropped to the 60% range.

A representative from a life insurance company said, "The insurance policy retention rate is a representative customer management indicator, and in advanced insurance markets such as Japan and Europe, the 25th installment retention rate is used to assess market soundness," adding, "Many small and medium-sized life and non-life insurers are struggling as their 25th installment retention rates are only around half."

The decline in retention rates is attributed to incomplete sales by insurance planners. Typical cases include selling whole life insurance disguised as savings insurance or insurance planners improperly paying premiums on behalf of customers. Economic difficulties making premium payments challenging and the increase in insurance remodeling services are also cited as causes of the retention rate decline.

According to a recent survey by the Korea Consumer Agency targeting consumers who canceled life insurance policies over the past three years (June 2016 to June 2019), on average, each person canceled 1.4 insurance policies and maintained insurance contracts for an average of 5.05 years.

The industry is concerned that the retention rate will decline further this year as the number of consumers canceling insurance policies has surged due to COVID-19. In the first quarter of this year, the surrender refund payments of major life and non-life insurers reached 7.6 trillion won, an increase of about 15% compared to the same period last year.

A life insurance industry official said, "If complete sales and after-sales management are not properly conducted from the customer acquisition stage, the retention rate will decline," emphasizing, "To raise the retention rate, reducing incomplete sales is paramount."