Early duration lapses can have a substantial impact on our member companies’ bottom line. When a policy does not remain in force long enough to become profitable, the company loses the expenses invested in underwriting and administering the policy, as well as the commissions paid to agents. These financial losses highlight the importance of monitoring and managing lapse behavior.
MIB’s Total Line Alert data now equips members with actionable insights into policy lapse patterns. These insights allow companies to identify areas where lapse risk is present and make more informed decisions to mitigate potential losses.
Case Study:
A recent case study illustrates a scenario that occurs with concerning frequency.
- Member company received an application for a $10,000,000 TERM policy.
- 56-year-old male.
- Discloses an additional $15,000,000 pending application.
- Discloses a $6,000,000 policy in force.
- No significant medical concerns noted.
Total Line Codes
Upon running a check in the MIB Checking Service, Total Line Codes reflecting in force and terminated policy activity were returned:
- In Force Policy Code didn’t raise a red flag.
- Terminated Policy Code revealed 10 or more policies no longer in force, with an aggregate face amount of over $20M, and date of most recent activity within the last 6 months.
The Total Line Alert details
- Confirmed disclosure of in force coverage and pending application was accurate.
- Exposed that the applicant had taken out and lapsed at least 11 life insurance policies.
- Revealed 9 of the 11 lapses occurred within the last two years – and were from the SAME company processing the existing application.
Below is a copy of the full Total Line Alert for this case study (You can also view an expandable version of this Total Line Alert).
Investigative Review
Legacy systems often hold critical policy details in silos that are not connected to modern platforms. Because these older systems don’t share data or surface it within current underwriting tools, underwriters may be completely unaware of important historical activity. In this case, the applicant’s prior policy information was buried inside legacy systems, inaccessible to the underwriter. As a result, the underwriter had no visibility into 9 terminated policies from their own company, even though that information technically
existed within the organization!
Luckily, the Alert details prompted the underwriter to perform a more thorough internal investigation, which ultimately uncovered all previously issued policies which lapsed in short order. An additional review clarified that, although all policies were written by the same agent, the pattern of early lapses was due to the insured’s behavior and not indicative of the agent’s professional conduct.
Informed Decision-Making and Risk Mitigation
Armed with comprehensive information regarding policy issue and termination dates, the member company engaged in a detailed discussion with its sales partners. They explained their decision to decline participation in this risk and made it clear that the applicant would not be considered for future coverage.
While our mission remains to provide life insurance protection to families, early and repeated policy lapses can be detrimental to our member companies. To address this, actuaries factor lapse propensity into product pricing. By leveraging MIB’s In Force data to pinpoint and respond to anti-selective behaviors, member companies can take targeted action against the individuals responsible, rather than penalize the broader customer base.
Learn more about how you can empower your organization with total coverage exposure data with the MIB Total Line Service by visiting: https://www.mibgroup.com/solutions/total-line-service.
