Is Your Insurance Policy ‘Orphaned’?

Insurance agents play an important role as intermediaries between policyholders and insurance companies. So, what happens when your agent stops servicing your policy? Jay Sampat answers.

Most life insurance policies in India are sold by agents who often become the primary contact between the insurer and the customer. The importance of the agent cannot be underestimated, as more than 50 per cent of individual new life insurance policies in India are sold by agents. In an ideal situation, the agent continues to service the customer after a policy purchase. In the life insurance sector, an ‘orphan’ policyholder refers to a policyholder whose agent is no longer working for the insurer. 

The role of the agent is particularly important during the policy renewal process and may include activities such as reminding customers about renewals, collecting renewal premiums and ensuring that the customer receives the receipts on time for tax purposes. Many policyholders in India depend entirely upon their agents for renewals and run the risk of their policies lapsing if their agent is no longer working with the company. In this light, a high rate of attrition among agents has created a significant challenge for life insurers.

Life insurers have tried to address these problems by developing and implementing orphan policyholder programmes. Here are some scenarios that you may face if your agent deserts you, and the recommended course of action: 

1) The agent does not provide proper services: If the individual is disgruntled with the quality of services being offered, there could be a situation where the policyholder is keen to end the relationship with his/her insurance agent and move on to another. The situation often gets tricky as life insurers are hesitant to take that call.

On your part, you can complain to the company and request a change. In such a situation, the company may take over the servicing themselves, but could continue to pay a commission to the agent. In such cases, the insurer then has to handle your policy directly. They may also decide to assign another agent, but bringing in a different agent of your choice is usually not possible.

2) Agent, bank & insurer part ways: In the ULIP regime, banks play a key role in selling insurance policies and contribute significantly to the insurer’s business. Over the tenure of the business, many banks have severed distribution ties with insurance companies, either to move on to more profitable arrangements with other companies or to start an insurance joint venture themselves.

This change means inconvenience for the policyholder of the bank’s former insurance partner. It could be a challenge because the bank will refuse to tend to you, citing the non-existence of the partnership. However, insurance companies that have lost banking partners tend to take corrective action and set up call centres to cater to such policyholders.

3) Agent winds up: The insurance company and its staff are responsible for offering continuous service to its customers even if the agent quits the business. If an agent leaves the insurance company or winds up his/her business, an insurance company is required to appoint an official for servicing the policy. The insurance company can either designate another agent for servicing the policy or can appoint an official in any branch for providing the necessary help to the policyholders. These days, companies try not to allocate the business to other agents because they may not be interested given the fact that the first-year commissions would have already been paid out to the previous agent.

For policyholders, however, little will change in such cases. The insurance company typically intimates them about the change, while asking them to establish a direct contact when necessary. 

Another possible scenario is where the agent decides to terminate the agency agreement with your insurance company but chooses to carry on with his/her other advisory businesses. If the agent has serviced policies for at least five years, insurers let them retain the right to earn renewal commissions. In this instance, technically, the policy will not be an orphan policy and the agent can continue to service the policy.

Even though banks have entered the insurance distribution business, individual agents continue to be the most important cog in the wheel while selling and servicing policies. The major factor behind this is that many individuals like to deal with an insurance agent who is a familiar face to them. It is for this reason that insurance companies give attractive commissions to agents. Inspite of attractive commissions to agents, there are many agents who don’t invest adequate effort into the job. As a result, many choose to opt out of the profession midway, leaving policyholders in the lurch.

However, there is no need to worry if your agent shuts his/her business as the agent is just a link between you as a policyholder and the insurance company, and you can always contact the company when the need arises. You can also access the guidelines laid out by the Insurance Regulatory and Development Authority (IRDA) for handling orphan policies.