- A unique first study in Canada As you may be aware, the Canadian Institute of Actuaries (CIA) has released in January the results of a 2-years study on lapse experience for 10-year term insurance. This study was made within the Individual Life Experience Subcommittee of the CIA. It has benefited from the important data contribution of many life insurance companies and RGA gladly took part in its
- preparation.
- Among the key elements to note, it must be pointed out that this study is a first by the CIA on T10 lapses. The project governance involved many volunteer actuaries and, through its course, 4 individuals from RGA contributed. The study manager came from the Fraser Group, an independent research organization. The data used by the study was provided by 10 out of the 12 largest writers of T10 life insurance. It represents over 6 million data records treated, or also 2.3 million unique policies.
- High renewal lapse rates Of the numerous valuable statistics derived in this study, I would like to highlight a couple. First, following are the results of the lapses observed at durations 10 and 11: Lapse Rates at Duration 10 & 11 (by Count) Duration Lapse Rate (Monthly Pay) 10 34.1% 11 32.9% My impression is that most of the industry stakeholders understand these results are quite high and few, to our knowledge, believe that they are lower than their own predictions. The lapse behavior in these 2 annual durations would certainly entice many of us to scrutinize them more in a future study.
- Smokers have higher lapse rates than non-smokers Table 11 Variance in Lapse Rates by Smoking Status (by Count) Proportion of Exposure Actual Lapse Rate Variance Ratio Smoker 17% 10.3% 1.20 Non-smoker 81% 8.3% 0.96 Aggregate 2% 6.4% 0.98 Total 100% 8.6% 1.00 Among the various tables produced in the study, the results by smoking status (displayed below) indicate that smokers tend to lapse more than non-smokers by a rate of 20 to 25%. Could this be attributable to higher premium increases at renewal for smokers, compared to non-smokers? Table 12 Variance in Lapse Rates by Smoking Status (by Amount) Proportion of Exposure Actual Lapse Rate Variance Ratio Smoker 13% 9.8% 1.25 Non-smoker 85% 7.7% 0.96 Aggregate 3% 5.3% 0.98 Total 100% 7.9% 1.00
- The next steps We should understand the reasons for these lapses, and the extent to which an insurer can control some of the factors influencing lapse behavior, for example the jump in renewal premium rates. At the upcoming CIA Annual Meeting in Vancouver, on June 18, there will be a session (no 6) about the impact this study will have on our industry. This is a very welcome opportunity to understand further this nice work - and see where future lapse studies may be headed.
- The next steps We should understand the reasons for these lapses, and the extent to which an insurer can control some of the factors influencing lapse behavior, for example the jump in renewal premium rates. At the upcoming CIA Annual Meeting in Vancouver, on June 18, there will be a session (no 6) about the impact this study will have on our industry. This is a very welcome opportunity to understand further this nice work - and see where future lapse studies may be headed.
