Lapsation adversely impacts not only the policyholder, but also the insurer and the industry. A significantly large portion of expenses is incurred upfront to procure a customer. This is not recovered if the policy is discontinued before its term, thus affecting the profitability of the insurance company. A high lapsation ratio also indicates unhappy customers and affects the company's reputation. So, while customers should take care that their policies don't lapse, insurers also need to continuously engage by way of service, education, guidance and followup. Here are a few things they ought to focus on to prevent lapsation:
Better customer service: One of the prime reasons for policyholders to miss their premium dates is poor renewal alerts either by the company or the agent. For this, insurance companies need to enhance their customer service. They should intimate their customers using various channels, such as telephone calls, SMS, e-mail, multilingual renewal reminders, etc. In many cases, alerts do not reach the customer because his contact details have not been updated.
Product innovations: Companies periodically conduct special revival campaigns, where lapsed policies are revived within six months of non-payment of the premium without any new documentation. However, there is a need for products that offer longer grace periods, where the life cover continues for an extended period of two years even though the regular premium has not been paid.
Understanding customer needs: At times, a policyholder may voluntarily allow the policy to lapse because he feels its features are different from those promised or because the product does not match his needs. It could also be due to his inability to pay. Such situations are best avoided if the insurance agent understands the requirements of the customer and offers him a product that fulfils his objectives. It would be in the interest of insurers to focus on educating their agents on this aspect.
At Bajaj Allianz, we study the reasons for lapsation and advise customers on ways to keep the policies in force. For example, customers are advised to adopt the ECS facility, which puts the policy in an 'auto mode'. This helps control lapsation to a certain extent. We also offer online renewal payment.
- V. Philip is COO, Bajaj Allianz Life Insurance
