Factors Influencing insurance policy lapse among policy holders in Uganda

Abstract

Insurance policy lapse is a significant challenge to the sustainability of insurance markets because it results in loss of insurance protection for policyholders and financial challenges for insurance providers. This study investigated the factors influencing insurance policy lapse among policyholders in Uganda, with particular emphasis on institutional factors, financial constraints, and strategies for improving policyholder retention. The study was conducted in Kampala using a descriptive cross-sectional research design and a quantitative approach. Stratified random sampling was used to select respondents, and data were collected using structured telephone and WhatsApp questionnaires. Out of 100 targeted respondents, 87 policyholders completed the questionnaire, giving a response rate of 87%. The data were analysed using descriptive statistics, Chi-square tests, and binary logistic regression.

The findings showed that 57.5% of respondents had discontinued their most recent insurance coverage, comprising 33.3% whose policies had lapsed and 24.1% who had surrendered their policies. Financial constraints were prominent, with 79.3% of respondents reporting that unexpected financial challenges contributed to failure to pay premiums, while 79.3% indicated that inflation made premiums difficult to afford. In addition, 82.8% reported that competing financial obligations, including business taxes and school fees, took priority over insurance payments. Institutional concerns were also evident, with 86.2% reporting unclear policy terms and hidden exclusions, while 90.8% indicated that lack of trust in claims settlement and inadequate customer service or payment reminders influenced their insurance experience.

The Chi-square analysis identified significant associations between policy lapse and employment status, competing financial obligations, education level, lack of trust in insurers, unclear policy terms, and support for grace periods. However, the binary logistic regression model showed that tertiary/postgraduate education, self-employment, and competing financial obligations were the significant independent predictors of policy lapse. Tertiary/postgraduate education was associated with lower odds of lapse (OR = 0.135, p = 0.028), while self-employment (OR = 7.302, p = 0.038) and competing financial obligations (OR = 5.057, p = 0.017) were associated with higher odds of lapse. The overall regression model was statistically significant (LR χ²(8) = 42.491, p < 0.001; McFadden’s pseudo-R² = 0.358). The study concludes that financial capacity, particularly employment type, education level, and competing financial obligations, is the dominant driver of policy lapse among the sampled policyholders, while institutional concerns tend to compound rather than independently cause lapse. The study recommends greater flexibility in premium payment arrangements, including smaller Mobile Money instalments and extended grace periods. These strategies received strong support from respondents, with 89.7% supporting flexible instalments and 93.1% supporting extended grace periods. Keywords: Insurance policy lapse, policyholder retention, financial constraints, premium payments, insurance, Uganda.