What is the role of grandfathering in policy models?

Grandfathering in policy models plays a critical role in enabling certain policies to continue existing under the original terms despite potential changes in regulations or policy structures. This is particularly important when new policies or laws are introduced that could adversely affect existing policyholders. By allowing these policies to remain unchanged, grandfathering protects those policyholders from immediate impacts and provides them with a sense of continuity and stability.

This mechanism is essential in maintaining customer trust and satisfaction, especially in environments where constant changes in regulations or product offerings may create confusion or dissatisfaction. It also serves to ensure regulatory compliance while avoiding disruption for those who would otherwise be negatively affected by new policies. Grandfathered policies may include those that were bought prior to regulatory changes, effectively exempting these agreements from new legal standards while keeping the insurer's obligations toward existing customers intact.