Counting the cost of cancellations: The power of data in predicting insurance cancellations

Our research at LexisNexis Risk Solutions has shown that each cancellation costs an insurance provider between £25 and £75. For an insurance provider with 100,000 policies on their books, a cancellation rate of around the industry average of 5% per year, equates to a loss of anything from £125,000 to £375,000 each year. A significant sum for any business.

Whether a cancellation occurs within the cooling off period, half way through the policy, or as a result of a new business renewal, cancellations are a significant problem for insurance providers operating in the highly competitive motor insurance market.

To tackle this problem, LexisNexis Risk Solutions examined whether data on past cancellations could be used in understanding future cancellation risk.

Based on the research findings, this blog sheds light on:
• The impact of insurance policy cancellations.
• Factors which increase the probability of future cancellations.
• How insurers can leverage cancellations data to make price adjustments to account for the risk each individual represents.