What effect may an overall rate increase have on existing business retention ratio?

An overall rate increase can lead to a reduction in the retention ratio for existing business. This is because when premiums rise, policyholders may seek other insurance options that offer more competitive rates. As a result, some customers may choose not to renew their policies or may cancel them altogether due to the higher costs associated with their current policies.

This reaction can stem from various factors, including a customer's financial situation, the perceived value of the insurance relative to its cost, or the availability of alternative coverage options that may be more affordable. The retention ratio measures the proportion of policyholders who renew their insurance policies; thus, if more clients leave in response to rate increases, this ratio can decrease.

The other options do not accurately reflect the dynamics between rate increases and retention ratios. It's essential to understand that while raising rates can be necessary for maintaining profitability, it comes with the risk of losing customers, which directly impacts retention.