Lapse Ratio

What Does Lapse Ratio Mean?

The lapse ratio, or expiration ratio, is the proportion of insurance policies issued by a company within a specific time period that are not renewed, compared to the total number of policies issued during that same period. This ratio serves as an indicator of how effectively a company retains its policyholders.

Insuranceopedia Explains Lapse Ratio

The lapse ratio is expressed as a percentage. For example, if 100 policies issued by an insurance company have lapsed at a given time, and 80 policyholders renew their coverage while 20 do not, the lapse ratio is 20%. This means that 20% of policyholders chose not to renew.

Insurance companies calculate lapse ratios for several reasons, one of which is to identify patterns that explain why policyholders are switching to competitors instead of renewing their policies. Based on their analysis of the lapse ratio, companies may reassess their pricing strategies or adjust the coverage offered in their policies.