Don't get fooled by your insurance agent

Going over the documents a few days after she had bought a money-back policy, hospital employee Suganthy Soundararaj discovered her name had been misspelt. She tried contacting her agent, but had no luck. "There was no clue where he had disappeared," she says. 

You could face such a situation anytime. Perhaps, you want your residential address updated or the nominee changed. Or, maybe the policy is nearing maturity. If your insurance agent is missing when you need him, industry jargon calls you an orphan policyholder.

The first step in such a situation is to call the company concerned and report that your agent cannot be traced. Even as their mechanism swings into action, try figuring out why through-thick-and-thin insurance agents are becoming a rarity.

The birth of OPS

"A successful agent has to understand a customer's needs, besides being aware of various policies and how they compare with those of rival companies," says a career agent. "He also has to be patient enough - and interested enough - to make repeated calls to a prospective buyer."

The Insurance Regulatory and Development Authority makes it mandatory for an insurance agent to complete 100 hours of training from an approved institution before he can sell policies. Couple these requisites with a proliferating insurance sector, and you have a high attrition rate among agents - as high as 25-30 per cent, according to Sanjay Jain, head of marketing at Bajaj Allianz Life Insurance.

For instance, Bajaj Allianz currently employs 165,000 agents, compared to about 29,000 in 2004. HDFC Standard Life has expanded its agency force threefold over the last two years, while ICICI Prudential Life almost doubled its field strength to 133,000 between March and October 2006. But as they switch from one company to another, agents often forget to inform their clients - let alone provide them with a roadmap for the future - thereby creating OPs.

Fresher agents and part-time agents, too, contribute to the situation. Many people are attracted to insurance-selling because of its flexible timings and low capital needs. Once acquainted with the rigour of the business, however, they prove unequal to the task.

And, often, it is their clients who pay the price. "Insurance agents are the most vulnerable to dropping out in the first three to six months. In this period, they exhaust their natural market - friends and relatives - and discover that cold-calling is not easy," says an insurance analyst.

Part-time agents - mostly people in regular employment, who look to sell insurance for extra money - are also a risk from the customer's point of view. While many juggle two jobs efficiently, a large number prove to be unreliable.

Money for nothing

Despite the Irda guidelines, rogue agents thrive because unless an agent actually joins another company, he continues to be paid a renewal commission on valid policies he has sold. An agent earns the highest commission (a part of the premium) in the first year, but in subsequent years, he is paid a certain percentage of that amount and could continue to earn money on policies he no longer services.

This is no insignificant amount: the commission rate on term insurance is about 25 per cent of the first year's premium, while on unit-linked policy it is between eight and 15 per cent.

The two drawbacks for agents looking to ditch policy-servicing: commissions are paid only if the agent services the first five years of the policy term. Also, he stands to lose his license, and subsequent commissions, if he does not honour the Irda order of selling at least 12 policies every year.

Company policies

So, what do insurance companies do when the agent disappears? While the Irda has no issues with a second agent servicing an OP if the original agent has quit the firm, each company has its own way of dealing with such a situation (see Left in the Lurch?).

"At Bajaj Allianz, we have an in-house service team that focuses on OPs and allocates them to another agent," says Jain. The second agent has the right to the renewal commissions once he starts servicing the policy.

To encourage service, some companies reclaim the entire first-year commission if a policy lapses within the first two years, and 50 per cent of the amount if it lapses in the third year. However, companies say there is no way to ensure all policies are serviced throughout.

You and the agent

Many of us buy policies on non-expert recommendations, perhaps for specific tax breaks or other benefits. Many of us are similarly disinterested in whom we are buying insurance from.

Nilesh Sathe, chief of the special business unit (pension and group schemes), Life Insurance Corporation (LIC), warns against this lackadaisical attitude. "Unlike other products, insurance is not bought, but sold," he says.

Insurance not only acts as life cover, but also as long-term investment. Therefore, customers have to pay as much attention to buying insurance - and who they are buying it from - as they do to, say, buying stocks. Not only the policy but also the agent has to suit your needs.

Shopping for an agent

• Ask the agent (even if he is a friend or relative) how long he has been selling insurance; don't forget to seek references from old clients.
• At the first meeting, check whether he is offering solutions to your insurance needs or merely selling a policy that fetches him better commissions.
• Life insurance policies, particularly unit-linked policies, are complex products. Ask questions about the policies available; compare benefits with those of policies offered by other companies.
• Insurance cannot be bought during a half-an-hour conversation, or in the first meeting. Spend time in understanding the policy you are buying.
• Fix a premium-payment mode that suits you the most. If you use an agent for payments, you might be at a loss if he drops out.
• If you have a transferable job, try to keep contacting the agent regularly.