Analysis of Surrender Rates and Lapse Behaviour in Nigerian Life Insurance Policies

This study analyzes surrender rates and policyholder lapse behaviour in Nigerian life insurance products and examines their implications for insurer financial stability and reserve management. Policyholder persistency, measured by the complement of lapse and surrender rates, is a critical assumption in life insurance pricing and reserving. High surrender rates can create liquidity strain and asset-liability mismatches, particularly for insurers with significant investment-linked or endowment product portfolios. This study uses persistency data from the annual returns of eight life insurance companies submitted to NAICOM for the period 2019 to 2023. Lapse and surrender rates are analyzed by product type, policy duration, premium size, and geopolitical zone. Logistic regression is used to identify socioeconomic and product design factors associated with higher lapse probability. Findings reveal that average first-year lapse rates across sampled insurers range from 22 to 38 percent, substantially higher than international benchmarks for comparable markets. Economic hardship, premium affordability, and policy misrepresentation at the point of sale were the most frequently cited lapse drivers by surrendering policyholders surveyed. Products distributed through bankers and telecom agents exhibited the highest lapse rates. The study concludes that high lapse rates in Nigerian life insurance reflect both economic vulnerability and poor sales practice quality. It recommends that NAICOM enforce minimum persistency standards and mandate insurer disclosure of persistency statistics in annual reports to improve market accountability.

Keywords: lapse rates, surrender behaviour, life insurance, persistency, NAICOM.