Surrendered policies cut into any gains made by life insurers

Surrendered policies cut into any gains made by life insurers

	Published : Wed, 12 Jul 2006 17:35 By : David Simms Print this Story

LONDON - The life insurance and pensions industry is being deprived of potentially billions of pounds annually because firms shell out a huge amount to attract clients, but cannot keep them in the long run, according to a new report released by professional services firm KPMG.

"A large element of the persistency problem lies with life and pensions companies, with the analysts placing too much emphasis on reported new business and not paying enough attention to retaining existing business,'' the report revealed. It added that some of the policies, which were cancelled in 2004, could have released a profit of as much as £4 billion.

"We estimate that in 2004 new business in the life and pensions industry added between £1.2bn and £1.8bn to embedded values," said KPMG financial services partner, Craig Graham. "However, the value of surrenders and paid-up policies that year is likely to have been at least £2bn and could have been as much as £4bn. We believe this trend is continuing." The report also said that life insurance industry was not putting in similar efforts as put in by the banking industry to retain customers.

A large majority of the respondents to its survey said that product persistency had slipped alarmingly over the last three years. "Banks have a different business model and have managed customer and product retention much more actively" Graham said. KPMG said that more than 50 percent of the money paid out in 2004 was because policies were surrendered before they matured.

Dave Gooding, KPMG's principal adviser opined that the life and pensions industry must get to the root of this problem. "They should be focusing just as much on what's going out the back door as what's coming in the front door as new business. If they lose more business than they had assumed, they would have to make adjustments to previously declared figures," he added.