High Lapse Rate After ‘Free’ 1st Year Cover
1 year ago, an FA firm (not an IFA) ran a promotion that offers a ‘free’ first year term coverage by rebating the whole first year premium. Now that promotion has backfired and the insurer wants to claw back more than $7m in commissions and volume discounts due to the high lapse rate. This was reported in the 24th July 2010 edition of The Straits Times – Insurer fumes over policy’s high lapse rate.
Many industry players view this ‘free’ 1st year coverage as a marketing gimmick. Many other industries run similar campaigns. For example, electronic stores may offer a free DVD player for purchase of a LCD TV. The intention of promotion is to get the attention and interest of consumers and to sell them other products. An important to answer is – Have the products that have been proposed meet the needs of the client?
The high lapse rate signal that the policy owner do not view that coverage as a need. The strong economic numbers would make financial hardship an unlikely reason for the phenomenon. Many promoters of similar ‘free’ campaigns would tell you “If you don’t like it, you can just cancel it’. Only those that have been approached know if similar tactics have been used.
I had the thought that most of the policy owners would have conveniently continued with the policy after the 1st year as it would be ‘troublesome’ to cancel. After all, it is a common tactic that telcos and tele-marketers use to get consumer to sign up plans. To my surprise, this has not been the case. However, no lapse numbers was published. We do not know it is 20% or 80%.
There is no free lunch in this world. If you are offered something for ‘free’, most probably, you will be paying through other means.
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Tags: Mis-selling
