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New Research Reveals High Orphan Rates

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Nearly one-third of individual life insurance policyholders in the U.S. believe their advisors have abandoned them. And approximately 25% of U.S. policyholders intend to purchase a new policy from a company other than their current insurance carrier within the next 2 years.

These are among the key findings of a new study from NewLink Group, Toronto, Ont. The report, carried out on behalf of ReMark Americas, an Atlanta, Ga.-based firm specializing in policyholder marketing, draws on national phone surveys of approximately 2,000 consumers in Canada and the U.S. done from the fall of 2003 through the spring of 2004.

“The typical agent has far too large of a customer base to service it properly,” says Michael Levison, CEO of ReMark Americas. “They focus on the top 10% to 20% of their clientele and spend the rest of their time chasing new business. Its an endemic problem.”

The result, he adds, is a significant number of “orphans”customers who have lost touch with their agents/brokers or financial advisors. The ReMark study pegged the real orphan numbers at 36% of personal life policyholders in Canada and 29% in the U.S. These figures are higher than those most companies acknowledge (typically 5% to 10%), according to NewLink Group Senior Vice President and Director Byren Innes.

The disparity, he says, can be attributed to the insurance companies narrower definition of orphans: clients who dont have an agent actively assigned to them. When surveying respondents, NewLink left the term open-ended.

Of clients who purchased from a life agent/broker, 41% (Canada) and 39% (U.S.) considered themselves orphans, according to the report. These rates compare with 18% (Canada) and 22% (U.S.) of those who purchased from a financial planner or advisor.

Financial advisors, notes Innes, tend to have more frequent contact with clients than do life agents, given the advisors need to manage retirement plans and portfolios more actively. That increased communication should contribute to declining orphan rates because of an ongoing shift in buying preferences.

During the next few years, 81% and 58% of customers, respectively, will consider buying from life agents/brokers and financial planners/advisors, according to the report. These rates contrast with 88% of customers who purchased 10 years ago using a life agent/broker, and 35% who bought within the past 5 years using a financial planner/advisor.

Underpinning the higher orphan rates north of the border is the fact that Canada has proportionally a higher percentage of independent agent/brokers (and, hence, fewer captive agents) than does the U.S., Innes adds.

“To the extent the [insurance] distribution channels have shifted from captive organizations to independent organizations, the transition process is weakened dramatically,” says Innes. “When you have agents leaving the business or their customers being reassigned to a servicing agent, thats when the disconnect takes place.”

Adds Levison: “Theres been a loss of accountability within the independent channel.”

Levison and Innes, do not argue, however, for a return to the large captive agent workforces of years past. Reducing the orphan rate, they say, requires instituting direct marketing solutions that allow advisors to reach out more easily to customers through non-face-to-face channels, including the phone, postal mail and e-mail.

The report notes that 10% and 39% of policyholders are, respectively, “very likely” and “somewhat likely” to buy though these channels within the next 2 years.

These direct marketing solutions can, for example, alert agents and advisors to trigger eventsthe expiration of a term policy or of the guarantee of insurability riderthat might prompt a reassessment of the policy and, therefore, renewed communication with the customer.

“The most successful insurance agents are those who constantly work their clients to help them identify new needs and opportunities,” says Levison. “Its much easier to sell to an existing client than to acquire a new one.”

Reproduced from National Underwriter Edition, May 7, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.