In underwriting, what does 'attrition' refer to?

'Attrition' in the context of underwriting refers to the natural reduction in the number of policyholders or coverage that occurs over time. This can be due to several factors, such as lapses in policy coverage when policyholders choose to discontinue their policies, claims that lead to payouts resulting in a loss of policyholders, or mortality where insured individuals pass away. Understanding attrition is crucial for insurance companies as it influences overall profitability, risk management, and future policyholder retention strategies.

By tracking attrition rates, insurers can assess how many clients are maintaining their policies versus how many are dropping off, thereby allowing them to adjust their pricing, marketing strategies, and service offerings accordingly. This also has a significant impact on the company's overall risk pool and financial stability.