A delayed lapse rate "hump" on protection policies may be on its way for financial advisers as consumers scour their direct debits to see where they can save money.
Advisers and reinsurers say they are seeing a slight increase in lapse activity - when policies are cancelled before the end of their term - with Pacific Life Re, whose clients include L&G and Axa, reporting a 2.4% rise to 12.6% in the three months to end of January.
Alex King, head of protection marketing at Pacific Life, says lapse rate statistics are seasonal, pointing to similar jumps at this time of year in 2007 and 2008, but argues consumers may have begun combing through their bank statements.
"People may have cut back on external spending, but maybe they are yet to go into their bank accounts and look at the direct debits," he says.
"There may be advisers sitting back now thinking the worst is over but that could turn into a bit of a nightmare situation."
He adds: "But it is important to remember there has always been seasonality in lapses. People often cut back on spending just after Christmas."
Axa and Friends Provident say median annual lapse rates are usually about 10% and have only marginally increased in recent months.
"It is not an issue we're concerned about but I have heard it from distributors," Graham Harvey, managing director at AXA protection, says. "We haven't noticed lapse rates going up but maybe that is because we have a relatively young book of business."IFAonline
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