What Is a Policy Lapse in Insurance?
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A policy lapses when it ends because the customer didn't pay or didn't act to keep it.
What it is
A lapse is passive: nobody decided to leave. That sets it apart from the other ways a policy ends.
| Type | What happened |
|---|---|
| Lapse | The customer didn't pay, or didn't act to keep the policy |
| Cancellation | The customer asked to end it |
| Non-renewal | The carrier chose not to renew it |
Lapse rate = policies that lapsed in the year ÷ policies in force at the start × 100. Many agencies fold cancellations into the same number.
What is a lapse in coverage?
A lapse in coverage is a stretch of time when a customer has no active policy, most often because a payment was missed and the grace period ran out. Any claim from that stretch is not covered. Calling within days of a failed payment is the simplest way to prevent one.
A worked example
Example. You start the year with 1,000 policies in force, and 60 lapse during the year. Your lapse rate is 60 ÷ 1,000 = 6%.
The usual causes
- A big renewal increase. The customer stops paying while they shop around.
- A failed payment. A card expired, or a bank changed, and nobody noticed.
- The carrier. It cancels for non-payment, or drops the product.
How to cut it
- Call before a big increase. Reach the customer before the bill does, with options.
- Set up automatic payment when the policy is sold.
- Call within days of a failed payment, before the grace period runs out.
How Producify works it out
Producify holds one lapse rate for your whole office.
It is kept in Settings, on the Revenue & spend tab under Revenue rates, and is used in revenue projections. Its card is Policy Lapse & Cancellation Rate. Employee ROI and the lead Pays back estimate both use it to shrink future renewals. See Read the ROI page.
Frequently Asked Questions
Can a lapsed policy come back?
Often, yes. If the customer pays what is owed, many carriers reinstate the policy.
Which producers have the worst lapse rates?
Producify holds one lapse rate for the whole office, so make this comparison from your own renewal records.
Watch the book grow or shrink
In Producify, you type each month's net change in auto and fire policies, and the year's total is set against your gain/loss goal.