Canadian life insurers are sitting on a quiet problem that rarely shows up in annual reports or conference speeches: policyholders who still pay for coverage but effectively have no-one looking after them. Veteran advisor-turned-consultant Rhona Konnelly (pictured) calls them “orphan policyholders” – and she argues they represent a consumer-protection gap that is only getting bigger as the industry ages, digitizes and consolidates.
“When we think of an orphan, we think of somebody abandoned, somebody that’s not cared for,” she told Insurance Business.
“In this context, it’s someone who has a valid, in-force life insurance contract, but no servicing advisor, often for years or even decades.” In practice, that means people who don’t really understand what they own, benefits that go unclaimed, deadlines missed because no-one reminded them, and no trusted professional to explain options when life changes. Konnelly is blunt: “They’re everywhere.”
There is no hard national count. She cites some industry estimates have circulated over the years, but Konnelly says the real issue is that no-one truly knows, because the data has never been systematically tracked or disclosed. What is clear, in her telling, is how easily these orphans are created – and how high the stakes can be once they are.
Konnelly has spent nearly five decades in life and health insurance, including more than six years in management, before shifting her focus to consumer advocacy and advisor training.
She still consults with advisors on tough cases, and it is in those files where she sees the cost of neglect most starkly. In one case, she was asked to meet a couple who held seven life policies. The husband, in his early 50s, had been unable to work for more than two years. Tucked inside one of those contracts was a disability waiver of premium rider – a feature common in older policies that allows premiums to be refunded and then paid by the insurer if the policyholder meets the disability definition.
“No-one had ever suggested he make a claim,” she said. Working with another advisor, she helped the couple file the paperwork. The insurer reimbursed roughly two-and-a-half years of premiums and took over future payments while his disability continued.
At the same time, she discovered the original advisor had previously removed the waiver on several of the man’s other policies, ostensibly to save a modest extra charge. “That family went years without knowing a benefit they’d been paying for was available to them,” she said. “That’s what happens when no-one is really stewarding the contract.”
Another case involved a business owner who sold her franchise and retired. Her life insurance had been arranged while she was active in the business; when she no longer saw the need, she rang her advisor and asked to cancel. “The advisor said, ‘OK,’ and let her cancel it,” Konnelly recalled.
Later, when Konnelly met her, she asked whether anyone had explained that the policy could have been converted and used as a chassis for long-term care planning using some of the sale proceeds. The client, who also had emerging health issues, said the option had never been raised.
“Look at what that family lost in terms of future planning flexibility,” Konnelly said. “Once you cancel, you can’t go back and say, ‘I wish I’d converted.’”
She has seen similar dynamics around universal life policies sold heavily from the late 1980s onward. Many buyers were told they could make a lump-sum deposit and allow investment returns inside the contract to cover ongoing costs. Decades later, after long periods of low interest rates and rising cost-of-insurance charges, the internal account is depleted.
“The insurance company sends a letter saying if you want to keep this policy, since there’s insufficient funds in the policy’s investment account to cover the rising costs of the insurance premiums (which could be triple or more of what the premiums were at policy issue), the policy is in danger of lapsing unless you add additional funds to the policy,” she said. “For many of these people, no-one has ever proactively managed that policy with them since the day it was sold.”
Konnelly is careful to frame the problem as systemic rather than the fault of a few bad actors. Part of it, she says, is compensation design and culture. Traditional agency forces were built around long careers with one company, where ongoing service was expected and often supported by renewal commission structures.
Over time, mergers, demutualisations and the rise of brokerage changed the landscape. “The industry has favoured new business,” she said. “They don’t favour service.” Today, much of Canada is served by independent brokerage firms and managing general agencies. For a broker who may not be paid on small renewal commissions – or at all on older blocks acquired through consolidation – the economic incentive to call a 70-year-old client with no obvious new-sale potential can be weak.
Digital distribution has created another pathway to orphan status. During the pandemic, carriers moved quickly to allow e-delivery of contracts for life, disability, critical illness and segregated fund products. That made it easier to complete sales when in-person meetings were difficult.
It also means that if an email address changes, people move, or families are never told the policy exists, the connection can disappear without anyone noticing. “Does a family even know a person has a policy? Ten, 15, 20 years go by – where is the contract?” Konnelly asked.
High turnover among new entrants adds to the problem. Many recruits who obtain a life, accident and sickness licence leave the business within a year or two, leaving behind small books with no clear transition plan. “Right now, as you and I are speaking, somebody has sold a life insurance policy, sent it via e-delivery, and there’s no plan in place for a servicing model,” she said. “We’re creating new orphan policyholders every day.” For Konnelly, that makes this a quiet but growing crisis. “The problem’s identified,” she said. “We can’t ignore the problem. We’ve got to start working on solutions.”
