Orphan policies – The shame of an industry

Thousands of owners of life insurance policies are at present without a servicing advisor with a valid license who can help them benefit from the various options offered under their insurance contract. The culprits, certain insurance companies are in conflict of interest. The regulators close their eyes on this situation. During this time, the insurance companies can artificially increase the rate of cancellation of these insurance contracts to get rid of their long-term obligations (death benefit) while taking all the paid premiums as profit (reserves).

 We were in 2007 at the insurance and investment congress in Montreal and three leaders (AIG, EMPIRE…) of the financial industry came to share their strategic vision on the distribution, the market evolution, the regulation and the future of our profession. A brave advisor rose and asked these leaders what they proposed to do to solve the problem of the orphan policies existing in the insurance industry. The question took these leaders by surprise. They could not articulate an answer and finally one of the leaders stammered that they were conscious of this problem but as this had existed for a long time, nothing could be done.

 Since then, nothing changed other than the growing number of these orphan policies. Deprived of the services of an advisor, it is only a matter of time before owners of insurance policies make a banking change or a change of residence and forget to inform the insurance company of it. For these policyholders, this will mean the possible loss of their insurance coverage for which they paid a premium during 20, 30, and 40 years… For the insurance companies and their shareholders who dream to take advantage of the reserves of these policies, this represents the goose that lays the golden eggs. Thirsty for capital, they cannot resist the lure of a fast profit.

Regulators are keeping the silence on this practice despite the fact it is against the law. That makes them complicite in taking advantage of unsuspecting policyholders. Although this problem has existed for more than 20 years and regulators are aware  of this problem, they have decided to ignore it. They have decided that the protection of the profit of certain insurance companies is more important than the protection of the public. Which is the most important? Protecting the 85 year old elderly who has Alzheimer and who without an advisor to help him, has his policy cancelled for which he paid 40 years of premiums because his family changed his bank account without knowing that this policy existed. Or is it more important to protect the insurers?


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