1. What is the Lapse Rate?

The lapse rate measures the percentage of insurance policies that have lapsed (not renewed) compared to the total number of policies. It's a key metric for insurance companies to assess policyholder retention and business sustainability.

2. How Does the Calculator Work?

The calculator uses the simple lapse rate formula:

Where:

• Lapsed Policies — Number of policies that were not renewed
• Total Policies — Total number of policies in force during the period

Explanation: The formula calculates what percentage of total policies have lapsed during a specific time period.

3. Importance of Lapse Rate Calculation

Details: The lapse rate is crucial for insurance companies to understand customer retention, predict revenue streams, and identify potential issues with products or customer service that may be causing higher-than-expected lapses.

4. Using the Calculator

Tips: Enter the number of lapsed policies and total policies in force during the same period. Both values must be positive numbers, and total policies must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good lapse rate?
A: This varies by insurance type and market, but generally lower rates (5-10%) indicate good retention, while rates above 15% may be concerning.

Q2: How often should lapse rates be calculated?
A: Typically calculated monthly, quarterly, and annually to track trends over time.

Q3: What factors can affect lapse rates?
A: Premium increases, economic conditions, customer satisfaction, competition, and policy features all impact lapse rates.

Q4: Is a zero lapse rate desirable?
A: Not necessarily. Some lapse is normal and expected in a healthy portfolio. Extremely low rates might indicate underpriced products.

Q5: How can companies reduce lapse rates?
A: Through better customer service, appropriate pricing, policy features that meet customer needs, and effective communication.