Lapsed policy? The agent will chase you

No insurance policy shall remain an orphan forever — so decreed the Lord, oops, the industry regulator. And so, there will be an agent now to remind you about any unpaid premium.

The Insurance Regulatory and Development Authority (Irda) has issued the final guidelines on lapsed and orphaned policies.

A life insurance contract ‘lapses’ when the policyholder does not pay the premium even after the grace period specified by the insurers.

On the other hand, a policy is considered to be ‘orphaned’ when the agent who was servicing it or had sold the policy, is no longer in business.

The existing guidelines suggest that if the policyholder continues to lapse the policy, then it is optional for insurers to continue to allot agents for servicing the policy. The new guidelines instruct insurance companies to delegate an agent to chase the policyholder for timely premium payments.

“This (Irda guidelines) is a step taken in the right direction to service such policies. Policyholders would benefit by renewing their policies,” said Abhay Tewari, chief actuary, Edelweiss Tokio Life Insurance.

Irda’s circular states that “insurance companies should allot any of the lapsed insurance policies to individual insurance agents whose licence is in force for the purpose of conservation and rendering effective policy service to the policyholders”.

This means, if your agent who had sold you the policy is no longer in service, then the company will have to assign a new agent for you.

This is an important development.
Data reveal that more than 3.5 lakh life insurance agents left the industry during the last fiscal.

This, in turn, increased the number of orphaned policies. For, without periodical reminders, the policyholder tends to forget about his/her investments and related obligations like premium payments.

The high lapsation ratio of 20% has been a matter of worry for Irda.

(Lapsation ratio is calculated by dividing the number of lapsed policies by the average number of policies at the beginning and end of the year.)

That’s why, Irda said that active agents who have completed two years in service can now be ‘allottee agents’ (who alone are permitted to service lapsed policies).

Irda’s circular also specifies the way in which lapsed policies should be handled by insurance companies. However, single premium policies, policies bought online and through direct marketing will not get the service of allottee agents.