Oct 2021
Licensed individual insurance agents are one of the main points of contact between the insurer they represent and the policyholders they serve. They are licensed to carry on “regulated activities”. These activities cover both sales-related activities and post-sales servicing activities (such as giving advice on the exercise of any right under an insurance policy, changes of terms or conditions to the insurance policy, or making or settling any claims under an insurance policy). The exact scope of the services insurance agents perform will depend on the terms and conditions of their agency contracts with the insurer, but usually individual insurance agents are expected to provide post-sales servicing advice and support on the insurance policies they arranged. Such post-sales advice and support is often as important as pre-sales activities and may require individual insurance agents to handle personal data, medical records and names of beneficiaries under insurance policies.
But what happens to the insurance policies arranged by an insurance agent when he or she leaves the insurer? Problems can arise if an insurer does not have in place requisite processes to ensure that these insurance policies (often known as “orphan policies”) continue to be serviced to the same standard as before the insurance agent’s departure.
In recent months, we have seen a number of complaints arising from this issue. The complaints range from servicing and operational issues all the way up to serious misconduct.
Examples of Complaints
A policyholder had purchased a medical insurance policy from an insurer through an insurance agent who then serviced the policyholder for a number of years. Eventually, however, the insurance agent left the insurer. The insurer assigned a new insurance agent to service the policyholder. The new agent, however, never once contacted the policyholder. When the insurer offered the opportunity for certain existing policyholders (including the policyholder concerned) to upgrade their medical insurance to a more comprehensive coverage, the new insurance agent never informed the policyholder of the offer. Consequently, the policyholder missed out on the opportunity to upgrade his coverage and suffered prejudice.
A policyholder had built up significant trust in the insurance agent who sold and serviced her insurance policy. When the agent left the insurance company, a new agent was assigned as the new servicing agent. The policyholder asked if she could have a different servicing agent, but was told that the insurer’s position was that she could only choose another servicing agent if she bought a new insurance policy from that agent. Even when the policyholder was eventually informed that the insurer did in fact allow her to choose a new servicing insurance agent without purchasing any new insurance policy, there was confusion between the originally assigned servicing agent and the new servicing agent, leading to sensitive personal data of the policyholder being passed between them against the policyholder’s wish, when the policyholder made a claim.
A general insurance company failed to properly notify a policyholder that his servicing agent had left their company. This resulted in multiple problems and delay when the policyholder wanted to renew his motor insurance policy and almost resulted in a gap in coverage exposing the policyholder to the prospect of driving without having the compulsory coverage in place.
An insurance agent terminated his agency contract with a life insurer and the life insurer appointed a new servicing agent to service his clients. The terminated insurance agent, however, continued to pose as the agent of the insurer and collected premium payments from his former clients without paying them onto the insurer. This continued until eventually several months later the newly assigned servicing agent contacted the policyholder and the truth was discovered (by which time several months of premium had been misappropriated by the terminated agent, who then could not be found).
These examples demonstrate the importance that insurers – particularly life insurers who enter into insurance policies with long-term commitments – must give to ensuring that orphan insurance policies continue to be properly serviced when the insurance agent responsible for arranging the policy leaves their company.
Insurers and key persons in control functions for intermediary management must therefore have in place proper controls and processes to address this issue, for example by assigning a new insurance agent to service the policies in an expeditious manner. If this is the approach insurers use to address this issue, then their controls and processes should cover the following:
Controls and Processes for Policies
The insurer must notify each policyholder concerned that the existing insurance agent has left the company so the policyholder knows not to deal with that insurance agent in relation to his/her insurance policies with the company any more. It is imperative that this notification reaches the policyholder as soon as possible (this could avoid extreme misconduct such as that identified in complaint no.4 above), and more than one means of notification is recommended (e.g. letter, SMS, e-mail or phone call, etc.).
The insurer must also send a clear communication to the policyholder introducing the new servicing agent (including the new servicing agent’s name, licence number, contact details etc.), explaining why a new servicing agent has been assigned. The insurer’s customer service hotline (or other dedicated policy retention hotline) should also be provided in the communication, so that the policyholder can call the hotline if he/she has any enquiries.
The insurer should give consideration as to which insurance agent to assign as the new servicing agent (for example, the insurer should consider the track record and complaints against the proposed new servicing agent before deciding to assign him or her to be the new servicing agent for orphan policies).
The insurer should require the new servicing agent to communicate with the policyholders they have been assigned within a reasonable period of time of being assigned. This may assist in flushing out any issues arising from the previous agent’s actions. The insurer should have a monitoring programme in place to ensure the new servicing agents have completed this step properly (e.g. tracking the acknowledgment from policyholders).
The insurer should ensure that servicing agents who have been newly assigned to service policies they did not originally arrange, understand that they are required to provide services to the same standard as in relation to those policies they did arrange.
The insurer should ensure that their agent’s compensation structure / framework properly incentivizes new serving agents to handle and service orphan policies as required by the insurer (and penalizes them when standards of servicing are not met).
The insurer should monitor and track the allocation of orphan insurance policies, the servicing of those policies and address potential problems which may arise from the assignment process. (For example, metrics such as the persistency of orphan policies, and the number of complaints received in respect orphan policies should be analyzed. Insurers should also monitor to see if a policyholder is assigned with agents who leave the company in quick succession and if so, consideration should be given to assigning serving agents with a demonstrated track record of serving customers).
In addition, technology has enabled insurers to utilize different mechanisms to service policyholders (with, for example, online self-service portals), so there are different means by which servicing of policies can take place. As best practice, therefore, insurers are encouraged to offer different channels for policyholders to communicate with them, so the policyholders can choose for themselves the most appropriate channel of communication which suits them.
Addressing the issue of orphan policies adequately so policyholders continue to be served in a fair and uninterrupted manner is imperative to the fair treatment of policyholders. Insurers (and intermediaries) with robust servicing arrangements will be rewarded many times over with loyal clients who will purchase insurance from them time and again, and even refer their friends and families to do the same.