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Regulation and Compliance > Federal Regulation

Dealing With Orphan Policyholders

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An orphan in insurance industry parlance is a policyholder whose original agent is no longer an active agent for the company that issued the policy. Sometimes they are referred to as unassigned policyholders.

In many cases, the agent who originally sold the policy or contract is no longer in the industry. In some cases, the agent may still be active but may have moved to another company and not kept his or her contract or selling agreement with the original company. In this case, the policyholder may still have contact with the agent, but the agent cannot fully service the client’s needs, due to a lack of a relationship with the original issuing company.

Another way orphans are created is when the agent moves into management and no longer actively sells or services his clients. However, the bulk of orphans are created when the agent leaves the business because of poor production, company mergers or to seek new opportunities.

Statistics vary about how many policyholders are orphans with figures being reported as high as 50% for some companies. In an economic downturn more agents tend to leave the business, which creates more orphans. This suggests that the number of orphans likely has increased over the last several years.

Many companies and general agents assign agents to service orphans since an orphan can be a potential sales lead. In some cases there may be an economic value to assigning an orphan because of commissions or fees, but in most cases orphans present no current value, but only the potential for commissions from future sales.

Most agents are ambivalent about contacting orphans. On one hand, there is a potentially favorable basis for a relationship since the orphan has maintained his policy even though the original agent is no longer servicing the policy. An agent is more likely to obtain a meeting with an orphan than a cold call prospect because of the opportunity to provide service by reviewing the products owned by the orphan. A new agent can strengthen his relationship with the orphan by resolving service issues. An orphan’s needs change over time and there are new opportunities for sales.

On the other hand, the orphan may be negatively predisposed toward the company and agents, in general, due to frustration with unmet expectations and lack of contact or service.

From a compliance standpoint, contacting orphans can be risky since the agent can get sucked into compliance issues which are not his responsibility or fault. An agent can stumble into a compliance problem and have a complaint lodged against him that actually reflects the orphan’s frustration and dissatisfaction with the prior agent or company. Problems with prior sales and dissatisfaction with prior agents or the current company and ongoing service issues can become a burden in terms of time and energy.

However, orphans can be a valuable source of new sales, so agents need to have a strategy for dealing with them that avoids compliance issues.


In most cases the new agent does not have a client file that provides information on the orphan or products sold in the past. Most agents find that with orphans they know payment history, policy value and a few other facts about the policy, but do not know the rationale for the original sale.

To prepare for a meeting with an orphan, the new agent should do some research. With electronic records it may take some effort to get a copy of original applications, forms or files. The agent should have a list of all policies the orphan has with the company as well as with other family members. He should review the orphan’s records to identify any prior problems-missed payments, billing errors, etc. He should also generate a new in-force illustration. If the agent is unfamiliar with the features and benefits of the policies sold to the orphan, he should learn about them by contacting the company.

Dealing with issues raised in the initial meeting with the orphan

The key goal of a first meeting with the orphan is to re-establish a positive relationship. Agents need to be prepared for a disgruntled policyholder. They need to be sensitive and not defensive if the orphan is critical of the company, general agent, prior agent, etc. The agent’s excuses for lack of contact or service may not satisfy the orphan and the agent needs to avoid further antagonizing the orphan. If a positive relationship cannot be established, the agent’s best course of action is probably to gracefully exit the interview.

The agent should review product changes, investment results, policy values, etc. since the product was purchased. It is important to provide information on any features, benefits or conversion privileges, etc. of which the orphan may not be aware.

The new agent should never criticize the prior agent or the company. Agents should keep in mind that whatever the orphan’s perception is of problems with the products he purchased, the prior agent or the company, the new agent can never know what the original circumstances were. Memories of what was said and promised can be faulty.

The best course of action is to determine what the current problems are and develop a plan with the orphan to resolve them. For example, if the orphan believes he never received a copy of the original policy, explain what he needs to do to obtain one. If beneficiary designations are incorrect, then the agent should help the orphan correct them.

If a positive relationship can be established, the agent then needs to do a complete need analysis. Only with a full understanding of the orphan’s current financial and personal situation can the agent provide meaningful advice. Often the agent cannot conduct a needs analysis until the agent has proven to the orphan that he will resolve any open issues, which means a needs analysis will have to wait for a future meeting.


It is sometimes easy to take advantage of an orphan’s dissatisfaction by writing a new policy, but it is better to see if the original policy can be changed or modified than replaced. Dissatisfaction with the service provided by prior agent or the company is not a sufficient reason for a replacement. The agent should consider suggesting a replacement only if the orphan’s needs and goals have changed and cannot be met by the original product or changes cannot be made in the original product to address those needs.

If a replacement is truly in the best interest of the orphan, the agent should develop and document a sound rationale for it and explain it to the orphan. The agent should explain the advantages and disadvantages of a replacement.

Problems with the original sale

If it is apparent that there was a problem with the original sale–i.e, it was unsuitable–it is inappropriate to ignore the problem. This can come back to haunt the new agent, by making it appear that he condoned or approved of the impropriety. If the orphan needs to address a serious impropriety in writing or needs to lodge a complaint to get an outstanding issue resolved, the agent should recommend that the orphan write the company a letter and provide the name and address of the appropriate company person or department.

It is not proper for the agent to help the client draft the complaint or letter, although the agent may suggest specific wording that will help clarify the complaint or issue. Agents should never provide an evaluation of the underlying issues and should make it clear to the orphan that the agent is not providing an evaluation. For example, it is inappropriate for the new agent to tell the orphan “this was an unsuitable policy that prior agent sold you.” This can end up pitting the agent against the company.

After the initial meeting

Everything discussed during the meeting with the orphan should be carefully documented in the agent’s client file as evidence that a review was conducted.

The agent should follow up on any service issues quickly to avoid being the target of complaints. He should keep the orphan informed of his progress in resolving any issues.

The agent should follow up with the company on any improprieties he identified through his fact finding. Even if the orphan does not follow through with a letter or complaint, it is the agent’s responsibility to the company to inform the company of what he learned.

If the agent is successful, he can turn that orphan into a satisfied client who can provide future sales and referrals.

Dennis Groner is a principal in Groner & Associates, a consulting firm that provides compliance and market conduct products and services to the financial services industry. He can be reached at [email protected].


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