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Report: life insurance policy lapse rates at a 20-year low

Ordinary life insurance persistency has been steady, fluctuating between 81.1 and 86.5 percent from 1997 to 2016.
Ordinary life insurance persistency has been steady, fluctuating between 81.1 and 86.5 percent from 1997 to 2016.

Lapse rates on ordinary life insurance products, which were between 5.3 percent and 5.9 percent in 2012-2015, represent the lowest rates in nearly 20 years, according to a new report.

An A.M. Best Special Report, “Anemic Yields Put Spotlight on Retention,” reveals that ordinary life persistency has been relatively steady, fluctuating between 81.1 percent and 86.5 percent from 1997 to 2016, a trend that correlates with the U.S. unemployment rate. The last two years have seen the highest persistency rates in nearly 20 years, around 86 percent.

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A.M. Best views more favorably those companies that have an increased percentage of higher creditworthy and less risky products, which can positively impact business profile. Unless it is a lapse-supported product, persistency generally benefits a company’s profitability.

However, even lapse-supported products need to persist for a good number of years to become profitable, the report states. Higher profit margins can be attained on renewal business, since acquisition expenses are recorded at the time of sale.


Category: Health Insurance

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