Policy Lapse / Cancellation (Storno)

Concept

Storno refers to the early termination of an insurance contract before its regularly agreed expiry. The causes can be manifold: ordinary or extraordinary termination by the policyholder or insurer, lapse of the contract due to non-payment of the initial premium or a renewal premium following an unsuccessful qualified reminder notice, or a timely withdrawal by the policyholder within the statutory withdrawal period.

Clawback Period and Commission Recovery

For the insurance intermediary, a lapse is of particular economic significance, since the acquisition commission paid to the intermediary must be refunded to the insurer if the contract lapses within a contractually agreed clawback period; the clawback period is intended to ensure that the intermediary is remunerated only for contracts that actually remain in force on a lasting basis.

Lapse Rate as a Management Metric

The lapse rate, i.e. the proportion of contracts terminated early within an observation period relative to the total portfolio, is an important management metric for insurers, since a high lapse rate can indicate problems with distribution quality, the suitability of the advice given, or customer satisfaction, and can significantly reduce the profitability of a book of business, particularly where high acquisition costs have not yet been amortized.