KPI of the Day – Insurance: % Policy renewal rate
Measures the percentage of insurance policies renewed, from the insurance policies sold.
To assess customer satisfaction, as customers will renew a policy when satisfied with it.
In the insurance industry, the policy renewal rate is often interpreted as a measure of customer satisfaction. It is believed that customers are more likely to renew their policies when they are satisfied with them. Therefore, managers are recommended to gain insight into the policy renewal pattern for individual clients. Such data can have multiple uses.
Firstly, it can identify which policies sell out more than others. Secondly, it can help managers make valuable decisions, not only when it comes to policy renewals, but also when closing on new customer policies. Least but not last, it can level out costs, as frequent policy renewals indicate loyal customers, which are more reliable than newly acquired ones.
One of the downsides in monitoring this indicator is that it does not provide any differentiation between obsolete customers and dormant customers. Dormant customers, who will eventually renew their policy, may distort the estimation. The level of impact this deviation will have on the results for % Policy renewal rate, will then depend on the number of dormant customers in the insurance company.
Nevertheless, recommendations on increasing policy renewal rates include the following:
- Establishing a single global process to manage renewal opportunities;
- Investing in data-driven risk assessment systems to increase efficiency;
- Building a complaints and feedback department for dissatisfied customers.
Measuring this indicator will not just give managers an idea of which policy sells more, but it will also help them make changes in updating old and current customers.
Maintaining a high level of policy renewal is important for keeping costs down, as existing customers are commonly less expensive to operate with than new customers.