1. What is Insurance Cancellation Rate?

The Insurance Cancellation Rate measures the proportion of earned premium relative to the full premium. It helps insurers understand policy retention and cancellation patterns.

2. How Does the Calculator Work?

The calculator uses the cancellation rate formula:

Where:

• \( earned\_premium \) — The portion of premium earned by the insurer
• \( full\_premium \) — The total premium amount for the policy

Explanation: The ratio shows what fraction of the total premium was earned before cancellation.

3. Importance of Cancellation Rate

Details: This metric is crucial for insurers to assess policy retention, profitability, and customer satisfaction. High cancellation rates may indicate issues with pricing or customer service.

4. Using the Calculator

Tips: Enter both earned premium and full premium in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good cancellation rate?
A: Rates vary by insurance type, but generally lower rates indicate better policy retention. Industry benchmarks should be consulted.

Q2: How is earned premium calculated?
A: Earned premium is typically calculated on a pro-rata basis for the time the policy was active.

Q3: What factors affect cancellation rates?
A: Pricing competitiveness, customer service, claims experience, and economic conditions all influence cancellation rates.

Q4: Should this rate be tracked over time?
A: Yes, tracking trends in cancellation rates helps identify emerging issues and measure improvement efforts.

Q5: How does this differ from lapse rate?
A: Cancellation rate typically refers to policyholder-initiated terminations, while lapse rate often refers to non-payment terminations.