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Companies Finding New Ways To Service Orphan Policyholders

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In their unending quest for new sales and bigger commissions, life insurance professionals often lose sight of the very individuals who helped to sustain their practices when the going was rough. Often, such “orphan” policyholders are sidelined through simple neglect or an inability of the advisor to maintain contact with an expanding clientele. At other times, the retirement, relocation, termination or death of an agent is to blame for the break in servicing. Whatever the cause, observers say, the result can be bad for business.

“The incidence of repeat buying from [orphaned] policyholders who don’t get contacted is very low,” says Bill Griffith, a regional managing director at Principal Financial Group, Des Moines, Iowa. “So if a client bought a policy from an agent and never heard from him or her again, then the individual’s next purchase will probably be from somebody else. What people want most is to know that their insurance company and their advisor care about them.”

That message has not been lost on insurers who are intent on keeping their orphaned customers within the fold. Those surveyed for this article by National Underwriter, including MetLife, New York Life and Principal Financial Group, have instituted programs, such as the large-scale use of direct mail campaigns, call centers and other outreach initiatives, to maintain contact with these policyholders and, ultimately, strengthen once tenuous relationships through renewed sales.

Such proactive efforts, sources say, will have to be adopted more widely if the insurance community is to reduce what many believe is still a substantial number of orphan policyholders. A 2004 survey conducted by Toronto, Ont.-based NewLink Group pegged the percentage of orphans at 36% of personal life policy holders in Canada and 29% in the U.S. Of clients who purchased from a life agent/broker, 41% (Can.) and 39% (U.S.) considered themselves orphans, according to the study. These rates compared with 18% (Can.) and 22% (U.S.) of those who purchased from a financial planner or advisor.

The report attributed the high rates mainly to the evolution in the distribution channel from a once predominantly captive agent field force to a now largely independent channel. One result, the report’s authors noted, has been a “dramatic weakening of the transition process” and a “loss of accountability.” The solution to the problem, the authors added, is not a return to the old distribution model, but to institute direct marketing solutions that allow advisors to more easily communicate with customers through non-face-to-face channels, including the phone, postal mail and e-mail.

For guidance in employing these direct marketing methods, independent advisors might look to the career agencies. Joe Jordon, a senior vice president at MetLife, says the company’s efforts to recapture its orphan policyholders are part of a marketing initiative to up-sell and cross-sell insurance and financial services solutions, such as disability income and long term care products. The direct mail campaign–dubbed ERWEC–targets existing clients, including an estimated 475,000 policyholders who each own $250,000 or less in life insurance.

Prominently featured in the mailings is the MetLife’s Starter Kit, a package tailored to (among others) young families and professionals and that includes information on term life and disability income insurance offerings. Also featured is literature on human life value, a technique for determining the economic value that one provides to a household over a lifetime and, thus, the amount of life insurance that should be purchased.

Not all of mailers focus so prominently on products. Every month, says Jordan, the company sends “legislative birthday” letters to clients aged 59 1/2 , 62 and 70 1/2 notifying them that they are eligible or required (depending on their age) to withdraw funds from a qualified retirement plan, Social Security or individual retirement account. Those customers reaching age 50 are also informed they may contribute an additional $5,000 annually into a 401(k).

“What we have is not an orphan policy program, but an overall strategy that aims to educate all of our clients–both orphans and non-orphans–about their income protection and retirement planning options,” says Jordan. “The beauty of the legislative birthdays is that each year, there are another 275,000 people to mail to.”

Clients who respond positively to the campaign are referred to life insurance professionals in MetLife’s 8,000-agent strong field force. Among these are approximately 6,000 “affiliated” (or career) agents and 2,500 advisors connected to a general agency system-based of MetLife’s New England Financial channel.

New York Life also uses direct mail to reconnect with orphan policyholders. Ed Tobin, a corporate vice president for the company, says that a letter goes to out to clients within 60 to 90 days of an agent’s departure notifying them of the termination and of the opportunity to meet with another agent.

Those individuals who “raise their hand,” says Tobin, can expect a reply within 72 hours. The same holds true regarding policyholders who reestablish contact through New York Life’s network of call centers, which, says Tobin, are part of a “sophisticated alert and lead system” used to gather updated financial information about policyholders and refer them to an appropriate advisor.

Whether the responding agent is able to establish the trust and good chemistry that his or her predecessor enjoyed with the client is another question, one sometimes decided on the ability of the local agency to match the client with an agent of the same cultural or ethnic background. But more often than not, says Max Muniz, a vice president for New York Life, the advisor’s expertise, presentation skills and commitment to promoting what’s in the best of the client are the deciding factors.

“You have to give, give and give still more to get,” says Muniz. “Each agent has to earn the right to service the client because that [client] is seeing a new face across the table. This is very much a relationship-based business.”

Tobin adds that New York Life’s “orphan household population” represents about 15% of the company’s book of business. The bulk of these orphans are considered to be of low to moderate net worth; affluent clients constitute a “very small percentage” of the total. One reason: Because many of these clients are business owners who require succession planning, their advisors tend to be more mindful of their own exit planning needs, not least the grooming of a successor (often a son or daughter) to whom they can hand off their clientele when they depart from the scene. To assist in this endeavor, New York Life avails its top advisors of a Successor Agent Program.

For many agents at Principal Financial Group, Des Moines, Iowa, the priority of the moment is not to develop a smooth transition to the next generation, but rather to shed less profitable ‘C’ clients so agents can focus more of their time on their top-tier ‘A’ and ‘B’ clients. To that end, Principal Financial expanded the mission of a 15-member home office team 5 years ago to service the ‘Cs’. Jump-started in 2001 to handle only orphaned clients, the unit’s broadened focus two years later initially met with resistance.

No more. The agent opt-in rate for the voluntary program, says Principal Financial’s Griffith, has increased by about 5% since 2003, to the point now where an estimated one-quarter of the company’s field force is participating. Chief reason: They see the arrangement as a good deal, as they get to partake in any resulting sales.

‘C’ clients that agents hand off for servicing receive from the home office unit periodic mailings, such as birthday cards, annual review notices and product literature. Those who reply are directed back to the referring agent. If the renewed contact leads to a sale, the agent keeps 50% of the commission, the balance going to the home office unit.

“Agents feel really good about the program because it allows them to spend more time on their most profitable relationships, while occasionally picking up from the home office a referral to an individual whom they probably wouldn’t have paid much attention to anyway,” says Griffith. “So it’s been a win-win.”

To be sure, the agent with whom the client originally did business doesn’t always get the subsequent sale. Often, says Griffith, clients who are outsourced for servicing are actually orphans because, for example, they’ve relocated to a state where the originating agent is not licensed to do business. In such cases, the client will be redirected to an agent licensed in new state.

Even when no new business results from a referral, the home office-directed campaigns yield a payback in terms of increased “persistency”: premium payments that stay on the books year after year. Indeed, says Griffith, this measure of customer loyalty is “slightly higher” for the home office unit than it is for the company’s field force at large.

“The results of the program have been just phenomenal,” says Griffith. “The ongoing personal service has not only driven up client retention, but also created more sales opportunities. We’re very happy with the initiative.”