Life Insurance: Millions Of Contracts Orphaned And Forgotten

Life insurance is a legally binding contract that promises a death benefit to the policy owner when the insured person dies. However, many policyholders rarely hear from the person who sold them their policy and are left in the lurch when they need support. These orphaned policyholders are often seniors who own troubled policies and are sitting on a goldmine of cross-sell and upsell opportunities for insurers. In fact, more than 40% of all life insurance policies are considered orphans with no active agent servicing the policyholder. This happens when an agent quits the business, changes companies, or focuses on financial planning activities other than life insurance. Orphaned policyholders can benefit from life settlements, an alternative to lapsing or surrendering a policy where the policyholder gets more cash than they would from the insurance company.

Reasons for insurance agents quitting the business

A life insurance policyholder whose agent has left the company or changed professions is considered an "orphaned" policyholder. This issue is particularly common in rural areas, where the agent is often the main point of contact between the insured and the insurer.

There are several reasons why insurance agents quit the business, and they can often be traced back to issues with the agency or company that the agent works for. Here are some of the most common reasons for agents to leave the insurance industry:

Poor Management

Agents may feel that they are not receiving adequate support or guidance from their managers. This can include a lack of training and resources, as well as a lack of involvement or communication from management.

Lack of Resources

Insurance agents need certain tools and resources to do their jobs effectively. If these resources are not provided by the company, agents may become frustrated and discouraged, leading them to consider quitting.

Unreasonable Expectations

Setting high goals can be motivating, but if expectations are too ambitious from the start, agents may feel demoralized and set up for failure. This is especially true for new agents who may need more time to build trusting relationships with clients.

Financial Strain

Many agents, especially those who are new to the industry, may struggle with the financial burden of purchasing leads. If they are unable to generate enough sales to cover these costs, they may run out of money and be forced to leave the business.

Poor Fit with the Company

Sometimes, agents may discover that the company or agency they work for is not a good fit for them. This could be due to differences in values, inadequate training, or a lack of support from the company.

Personal Issues

Finally, agents may leave the insurance business due to personal issues such as health problems or family matters.

It is important to note that many of these issues could potentially be mitigated by proper support and training from the agent's company or agency. By addressing these concerns, insurance companies can help reduce the number of orphaned policyholders and improve the job satisfaction of their agents.

The impact of orphaned policies on customers

Customers who find themselves in this situation may face challenges in several areas. Firstly, they may no longer receive regular updates, reminders, or notifications about their policy. This includes important information such as premium due dates, which can lead to unintentional lapses in coverage if customers are not diligent in managing their policies independently. Secondly, orphaned policyholders may encounter difficulties during critical processes such as switching funds, understanding bonuses, or filing claims. These processes can be complex, and without agent support, customers may struggle to navigate them effectively.

Additionally, orphaned policies can result in a lack of monitoring of policy performance. Customers may diligently pay their premiums for years, only to find out unexpectedly that their policies are not performing as expected. In some cases, insurance companies may suddenly inform them that their policies will lapse unless they start paying substantial additional premiums. This can cause significant financial strain and stress for customers, especially if they are seniors or have limited financial resources.

Furthermore, orphaned policyholders may feel a sense of disconnect from their insurance carrier. Without a dedicated agent, they may question whether the company values them as customers and has their best interests in mind. This can lead to a decline in customer satisfaction and loyalty, potentially driving customers to seek alternative insurance providers who can offer more personalized service and support.

To mitigate the negative impact of orphaned policies on customers, insurance companies should implement strategies to improve customer centricity and build stronger connections. This includes providing dedicated support, ensuring seamless transitions when agents leave, and offering digital tools that empower customers to manage their policies independently. By prioritizing customer retention and satisfaction, insurance carriers can create a "win-win" situation, benefiting both the company and the policyholder.

The role of the Insurance Regulatory and Development Authority of India (IRDA) in reducing orphaned policies

The Insurance Regulatory and Development Authority of India (IRDAI) is a regulatory body that oversees the Indian insurance sector. It was established in 1999 as an autonomous body under the Insurance Regulatory and Development Authority Act, 1999, to regulate and develop the insurance and reinsurance industries in the country. The IRDAI has recognised the issue of orphaned policies and has implemented several measures to reduce their occurrence.

When an insurance agent leaves or is terminated from their company, the insurance company must appoint an "allottee agent" to take over the policies and provide services to the policyholders. This allottee agent must have completed at least two years of service as an agent with the insurer. Once assigned, the insurer must notify the policyholders of the new agent's details. The allottee agent is responsible for servicing all orphaned policies and cannot pass this responsibility to a third party. They are, however, allowed to canvass for new business from these policyholders.

The IRDAI has set guidelines for insurers and allottee agents to follow in the event of orphaned policies. If an allotted policy lapses after revival, it can be reassigned to another allottee agent, even if the previous one is still with the insurer. Single premium life insurance policies or policies with no further premiums due are not eligible for reassignment.

The IRDAI also plays a crucial role in protecting policyholders' interests, promoting fair and transparent practices, and fostering the development of a robust and sustainable insurance market in India. It issues licenses to insurance companies, sets capital requirements, and monitors their compliance with applicable laws. The authority also reviews and approves insurance products before their market introduction to ensure fairness and transparency.

In addition, the IRDAI promotes public awareness of insurance products, their benefits, and the importance of insurance. It conducts campaigns, publishes educational materials, and initiates programs to enhance financial literacy and empower consumers to make informed decisions.

The IRDAI's comprehensive approach to regulating the insurance industry balances the interests of policyholders, insurance companies, and the overall growth of the sector in India.

How to deal with an orphaned life insurance policy

An orphaned life insurance policy is one that has been abandoned by the policyholder and their agent. This often happens when an agent quits the insurance sector or changes companies, leaving the policyholder without guidance on premium payments. Here are some steps to deal with an orphaned life insurance policy:

• Contact the insurance company: Get in touch with your insurance company as they are responsible for offering continuous service to their customers, regardless of the agent's availability. They can assign another agent or appoint an official in a branch to provide assistance.
• Understand your policy details: It is important to have a clear understanding of your policy details, including the premium amount, payment deadlines, and important contact information such as the nearest office of the insurer. Keep these details organised in a safe place.
• Use online complaints forums: Utilise online platforms provided by the insurer to record any complaints or issues. Make sure to keep a record of your interactions, which can be useful if the insurer contests your claim.
• Reach out to the insurance ombudsman: The Insurance Regulatory and Development Authority of India (IRDA) takes a strict stance on a lack of service from insurers. By law, every insurer must prominently display the email address of the insurance ombudsman. If you have a legitimate issue, contacting the ombudsman while also marking the insurer can be an effective way to receive assistance.
• Take responsibility for policy renewal: Ultimately, it is your responsibility to ensure your policy remains active. Keep track of renewal dates and take advantage of reminders or discounts offered by the insurer for early payments or multiple-year premium payments.

The benefits of retaining orphaned policyholders for insurance companies

An "orphaned" life insurance policy is one that has been abandoned by the agent who sold it, and in some cases, by the policyholder themselves. This often happens when an agent leaves the company or the industry altogether, and the policyholder is left without guidance on premium payments. Orphaned policies are more common in rural areas, where the agent is the main connection between the insured and the insurer.

Increased customer loyalty and satisfaction:

Providing better services to orphaned policyholders can increase customer loyalty and satisfaction. A more personable and friendlier approach from insurance agents, along with personalized products, can lead to higher customer retention and positive word-of-mouth.

Improved customer experience:

Today's customers are not only interested in the policy itself but also seek a good customer experience. By embracing a welcoming and friendly customer service approach, insurance companies can meet the changing needs and expectations of their customers.

Enhanced customer engagement:

Re-engaging with orphaned policyholders can create an opportunity to upsell or cross-sell additional products or services. Many orphaned policyholders experience life changes that may require expanded insurance coverage or investment products offered by the carrier. By identifying and reaching out to these customers, insurers can increase their sales and revenue.

Improved financial health:

Identifying and retaining orphaned policyholders can be vital to an insurer's financial health. By preventing policies from lapsing and retaining customers, insurers can ensure that premiums stay on the books.

Compliance and risk reduction:

By proactively engaging with orphaned policyholders, insurance companies can reduce the risk of complaints and compliance issues. A new agent can strengthen their relationship with the policyholder by resolving any service issues and ensuring a positive customer experience.

Frequently asked questions