Show the surrender value before the maturity value

Anyone who has bought a savings policy in India has been handed a benefit illustration. It is a table, often several pages long, setting out what the policy pays at maturity and, for income plans, in each year of the payout. For participating and unit-linked policies it shows two scenarios at investment returns the regulator prescribes. Near the back, usually in smaller type, a column shows the surrender value at the end of each policy year.

For a large share of customers that column is the most important figure in the document, and it is the one they are least likely to read. In our own book roughly one regular-premium savings customer in seven stops before the second premium, and more stop in the years that follow. For each of them the maturity value at the top of the illustration was never relevant. What they receive is the surrender value, and most discover it only when they ask for it.

The number customers are shown first

I first learnt this as a teenager, when my father asked what his endowment policy was worth after illness had forced him to stop paying. I learnt it again as a pricing analyst, when a lapse study showed that the customers most likely to stop were those sold the largest premiums against their income. And I learn it each quarter now, reading the complaints that reach our policyholder protection committee. Many complaints that allege mis-selling are, underneath, complaints about surrender: the customer stopped, asked for the money and was given a figure well below what they had paid in.

The layout of the illustration encourages this. A distributor naturally points to the maturity figure, because it is large and it is the reason the product exists. A customer told that ₹1 lakh a year for ten years becomes ₹17 lakh after fifteen hears a promise about the fifteenth year. Nobody hides the surrender column, yet the order of the document tells the customer which number counts.

I want to reverse that order. A savings plan's first figure should be what the customer gets back after two years, then three and five, and only then what arrives at maturity. This is not a disclosure device. Leading with the early-exit value changes what a distributor must explain, what a customer must understand before signing and, in time, what an insurer is willing to design.

Who pays for a fairer early exit

In 2024 the regulator's revised framework for life insurance products required higher surrender values in the early years of non-linked savings policies. I welcomed the direction, and the industry argued, not unreasonably, about the cost. Someone has to pay when a departing customer receives more, and there are only three candidates. Customers who stay can receive slightly less at maturity. Shareholders can accept a lower margin. Or distributors can take less commission in the first year and more in later years, while the policy remains in force.

Our actuaries' first proposal put the whole cost on the customers who stayed, trimming the return on our main fixed-return plans by about 0.6 percentage points. It was the simplest answer and protected the margin. I argued instead for moving roughly 30 per cent of first-year commission into trails paid in years two to five, trimming customer returns by only 0.15 points and letting our margin on these plans fall from 34 to 31 per cent.

Generosity had nothing to do with it. Front-loaded commission is a principal reason early lapse happens, because it pays for a sale whether or not the policy survives. Moving part of it to later years makes a distributor's income depend on persistency, which is the very behaviour a fair surrender value is meant to protect. Charging loyal policyholders for those who leave would have penalised the customers we most wanted and left untouched the incentive that produces early exits.

The cost was visible. Our promoter bank's insurance team objected hard, and our agency leaders warned about agents' earnings. One partner bank gave its shelf to a competitor for nine months, costing about ₹180 crore of APE, before returning on the new terms. Persistency on our fixed-return savings book has improved since, and early surrenders have fallen by about a third.

An illustration that begins in year two

The illustrations changed later than they should have, during 2025. Every savings illustration we issue now opens with a short table: what the customer will have paid, and what they would receive on stopping at the end of years two, three and five. The maturity benefit and the scenarios come afterwards. Relationship managers and agents are trained to go through the first table before the second, and our pre-issuance verification call asks the customer to repeat the year-two figure back to us.

Some distributors said the new order would make products harder to sell. They were right, a little. Conversion from illustration to proposal dipped at first and has partly recovered. What changed more was the conversation. A customer who knows the year-two figure asks whether ten premiums are affordable, and a distributor who expects that question stops proposing premiums the customer cannot sustain.

The deeper effect is on design. Once the early-exit value is the first number a customer sees, a product team can no longer treat it as whatever remains after the maturity benefit and the commission have been fixed. It becomes a choice made at the start. We now set a minimum acceptable surrender value at the end of year three, as a share of premiums paid, before pricing any new savings product, and the Appointed Actuary prices within that constraint.

For directors the practical request is simple. Ask management for the surrender value at the end of years two, three and five on each main savings product, as a share of premiums paid, beside the proportion of customers who actually leave in those years. A product whose customers leave early and receive little is not a good product, whatever its maturity figure. Its illustration should admit as much on the first page.