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After hitting a 20-year low in 1994, the lapse ratio for the life insurance industry reversed its downward trend and rose a nominal 0.3 percentage points in 1995. The lapse ratio increased to 8.6% after posting a 1.5 percentagepoint decrease to 8.3% in 1994.
The lapse ratio in recent years has indicated relatively strong persistency in ordinary life business. After hitting a high of 14.1% in 1984, the ratio improved in eight of the following 11 years to reach its 1995 level. Only minimal annual increases in this ratio of 0.2 percentage points, 0.4 percentage points and 0.3 percentage points were sustained in 1990, 1993 and 1995, respectively.
The improved ratio in recent years has been attributed partially to the changes occurring in the industry as interest-sensitive products replace less competitive traditional whole life products.
Also aiding persistency have been improved underwriting practices; changes in product mix; concentration in more sophisticated markets, such as estate planning; and improved market research. In addition, public concern over the quality of insurers' assets has made policyholders reluctant to change insurers.
Working against persistency is the adverse publicity over improper sales practices, which also has affected sales...