Lapse rate is the percentage of policies that terminate without renewing in a given period. It is the direct inverse of retention rate: a book retaining 89% is lapsing at 11%.
The three kinds of lapse
Treating all lapse as one number hides the fact that the causes are completely different and only some are addressable:
- Involuntary lapse — non-payment, usually a failed card or a missed notice. Frequently recoverable, and the cheapest lapse to prevent, because the client did not intend to leave.
- Competitive lapse — the client shopped and moved. Often triggered by a rate increase plus a competitor's timely ad.
- Natural lapse — the exposure ended. The car was sold, the business closed, the client died. Not addressable, and should be excluded before drawing conclusions.
An agency reporting 12% lapse where 3 points are natural is really running 9% addressable lapse. Reporting the blended figure makes the problem look both larger and less tractable than it is.
Why the timing of lapse matters
Most competitive lapse is decided in a narrow window before the x-date — typically the 45 days when the renewal notice arrives and the rate change becomes visible. Outreach inside that window is defensive and often too late. Outreach that established contact months earlier is what actually changes the outcome.
The measurement discipline
Segment lapse by cause, by line of business, by tenure, and by policies per client. The aggregate number tells you there is a problem. Only the segments tell you where it is — and first-year monoline clients almost always turn out to be the concentration.