How to deal with ‘Orphan’ policies

This article was written by Personalfn for Business India, and was carried in its June 04, 2006 issue with the title, "Saving ‘Orphans’". The original draft, in its entirety, has been retained here.

Individuals who have bought life insurance policies are at times faced with the problem of their insurance agent/advisor not being around during the tenure of the policy. Often, the agent loses interest once he has “talked you” into taking a policy from him. This leads to the policy no longer being serviced by the agent and as a result, the policy becomes an “orphan” one. We take a look at the recourse available to policyholders in such a scenario.

Let us first take a look at the probable reasons for policies being ‘orphaned’, 

1. Lack of interest on the agent’s part
It’s an acknowledged fact that life insurance is seldom bought; it is usually sold. Many a times, this leads to insurance agents losing interest over a period of time after various ‘failed’ attempts at ‘trying’ to sell insurance. In effect, this leads to non-performing insurance agents after say 6-12 months. 

Another reason why agents lack interest is because of the inherent commission structure of insurance policies. Insurance commissions are very high in the initial years but fall significantly thereafter. This keeps the ‘not-so-serious’ agent ‘interested’ only for the first couple of years, his interest wanes after that. Another reason is that of a client transfer (from an old agent to a new one), the new agent cannot claim commission on the transferred client. It becomes obvious then that the new agent will not be interested in servicing the client due to a lack of incentive (read commission). 

2. Part-time agency
Ideally, life insurance agents should be employed on a full time basis. And that is how life insurance companies also want them to be. However, this is not always possible. Many agents work on a part time basis. This can sometimes lead to poor service levels and lower interest in advising/servicing the client.

3. Lack of professionalism
This problem is unique to certain individuals. Some agents lack the professionalism required to meet the standards of a good insurance agent. For example, an agent may not update himself on products available from other insurance companies. This will in turn, hamper his chances of selling his own company’s products to a customer who’s market-savvy. 

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Yet another agent may not be adept at understanding customer needs in terms of his intellect or skill sets - especially given the fact that one only needs to have passed his 12th standard examinations to appear for the life insurance accreditation exams. The agent also may not be a good listener, which is a basic pre-requisite to be a successful insurance agent. This can also lead to agents going ‘bad’ over a period of time.

4. Lack of company support
Our interaction with some insurance companies indicated that a rapid increase in the number of agents being taken on board by the company could also lead to insufficient support to agents by the company. This has a repercussion on the agency since the agent is not able to service the client satisfactorily. In the long run, this may lead to agents losing interest in servicing clients. 

There can also be other reasons like the agent shifting location, the client changing location and so on. 

What you need to do
So what can be done to ensure that individuals do not land up with an orphan policy? Listed below are a few pointers, 

1. Choose your agent carefully
You should be proactive while selecting the insurance agent. Insurance seekers should ideally opt for a full-time insurance agent. Also, they should look for a client service track record. Agents who have a good track record are typically the ones who are more focussed on work and give it their ‘full-time’ attention. The chances of such agents becoming non-performing are relatively low. 

2. Approach the insurance company
This is the first step that individuals should take in case they have an orphan policy. Approach the life insurance company and inform them about the problem. They are best placed to offer a solution to this dilemma. The insurance company will try to offer an alternative, either by deputing a new agent to the individual or directing him to a bank with which the insurance company has a tie-up. 

Some insurance companies also allow the policyholder to write to the company head, say the chairman, seeking redressal in case the individual is holding an ‘orphan’ policy. The chairman has the discretionary powers to transfer the individual’s policy to another agent who will also be entitled to a part of the renewal commission receivable on the existing policy. 

3. Use the internet 
Nowadays, premium payments can be made online i.e. using the internet. Several life insurance companies have tools and calculators on their websites, which help individuals calculate their insurance and retirement needs. These tools equip individuals to calculate their own needs and requirements thereby reducing the role of an agent to a minimum. 

Individuals can also utilise the company’s call centres. They can call the help lines (which are usually available on company websites) to ask for assistance on various issues pertaining to their existing policy like say, how to make online premium payments, which is the nearest branch to approach and so on. All insurance companies usually have a 24-hour call center to assist policyholders.

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