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Lapse and dynamic lapse

R

rlsrachaellouisesmith

Ton up Member
Hi

I just wanted to confirm my understanding of dynamic lapses.

A lapse is the risk of a policy being cancelled/terminated due to non payment/surrendered. I think it could either be because of:
- company/distributor behaviour/actions - e.g. poor customer service, misselling, poor value product compared to the rest of the market, etc.
- policyholder behaviour unrelated to company actions - e.g. secondary impact of changes in the economy - affordability, change in inv performance of a product, value of guarantees, selective withdrawal.

Where the second instance describes dynamic lapses. Is that correct?

Thank you,

Rachael
 
The term 'dynamic lapse' refers to modelling, whereby the lapse / surrender / withdrawal rates used within the model are programmed in such a way that they automatically vary according to other modelled factors, such as investment returns and the 'moneyness' of guarantees / options.
 
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