The Effect of ULIP Cost Structure on Investor Persistency: The Moderating Role of InsurTech Adoption

Abstract

This paper develops a framework that is conceptually theoretical to define the composite relationship between the cost structure of Unit Linked Insurance Plans (ULIPs) and investor persistency- a key determinant of the long-term sustainability and financial performance of insurance providers. The front-loaded pricing structure of ULIPs, including high initial charges and surrender penalties, is generally regarded as a factor that discourages long-term investment. Nevertheless, this study suggests that these costs may also contribute to investor persistency by affecting investors' behavioural and rational decision-making processes. Drawing on agency theory, behavioural finance (particularly loss aversion and the sunk cost effect), and the Technology Acceptance Model, the study investigates whether InsurTech adoption moderates the relationship between ULIP cost structure and investor persistency.
This study is based on the premise that the cost structure of Unit Linked Insurance Plans (ULIPs), particularly high initial charges and surrender costs, may influence investor persistency by increasing the perceived financial and psychological costs associated with discontinuing a policy. These perceived switching costs can encourage investors to maintain their policies over a longer period despite the initial financial burden. However, the strength of this relationship is expected to depend on the extent of InsurTech adoption. Digital innovations, including robo-advisory services, personalized policy management platforms, AI-enabled customer support, and behavioural nudges, have the potential to enhance transparency, improve customer engagement, and help investors better understand the long-term value of their investments. As a result, InsurTech adoption may shift investors' focus from short-term costs to the overall benefits and value of continued policy ownership, thereby strengthening investor persistency. In contrast, limited access to digital insurance services may amplify the perceived burden of policy charges, increase dissatisfaction, and contribute to higher lapse rates. By integrating perspectives from insurance economics, behavioural finance, and digital financial services, this study develops a comprehensive framework to examine the relationship between ULIP cost structure and investor persistency, while highlighting the moderating role of InsurTech adoption. The findings are expected to contribute to the growing literature on digital transformation in insurance and provide practical insights for insurers seeking to improve customer retention through effective product design and technology-enabled service delivery.