Unclaimed Benefits … The Insurance story
According to the Financial Sector Conduct Authority (FSCA), there are about R90bn of unclaimed benefits in the financial sector, with around 38% of this specifically being held in the insurance industry. One would think the concept of unclaimed assets is straightforward, but actually the main reason for this huge amount of unclaimed assets a lack of common understanding in the industry of what constitutes an unclaimed asset. There is inconsistency in the way financial institutions identify and manage unclaimed assets, thereby contributing to this high amount. In this regard, the FSCA, together with industry body associations, have embarked on education drives and consultations with financial institutions to classify unclaimed assets, and standardise ways to identify unclaimed assets.
Conclusions thus far include some of the basic terms of unclaimed benefits:
- “dormant account” refers to an account in which there has been no activity by the owner for a prolonged or sustained period of time;
- “lost account” refers to an account where the owner or beneficial owner of the account cannot be located; and
- “unclaimed asset” refers to any asset due to a person by a financial institution that remains unpaid or unclaimed, and that a financial institution is unable to reunite with its beneficial owner.
For insurers, unclaimed assets (defined above) constitute unclaimed benefits, which typically are made up of:
- long-dated or long-notified claims not yet paid; those that remain unclaimed; and
- those where insurers are yet to trace beneficiaries, although being fully aware they are due for payment.
From a Treating Customers Fairly (TCF) perspective, the FSCA advocates that financial institutions should not retain unclaimed assets for a long period of time, as this compromises fair outcomes for beneficiaries. In practice, what does this mean for insurers? Insurers have a responsibility to identify and reconcile these unclaimed assets, and make every effort to find the right beneficiaries to receive those benefits. In addition, insurers are obliged to provide a report to the FSCA, through the Association for Savings and Investment (ASISA), of all such assets.
While there are no legislative requirements for the life insurance sector regarding the identification, treatment and reporting of unclaimed assets, ASISA has taken steps to harmonise the approach to unclaimed assets for its members – a binding standard, the ASISA Unclaimed Assets Standard. The Standard came into effect on 1 January 2018 and sets out:
- guidelines that ASISA member companies are required to follow when investing the unclaimed assets;
- requirements for customer disclosure, record keeping and annual reporting of unclaimed assets data to ASISA in a determined format; and
- principles that ensure that unclaimed assets do not become the property of the financial institution and a customer’s right to an unclaimed asset remains until the claim is paid or the asset returned, regardless of the timeframe.
Furthermore, the Standard encourages member companies to remind customers of their entitlement to assets following trigger events e.g. a policy reaching its maturity date, a risk benefit claim having been approved, communication being marked as undelivered etc. Insurers are required to be proactive after such trigger events and to make all reasonable efforts to trace the customer, heirs or beneficiaries. Where these steps have been exhausted over a three-year period, the assets may be utilised for socially responsible investments with commercial returns such as Enterprise Supplier Development Funds.
Under the Long-Term Insurance Act, the Policyholder Protection Rules (PPR) assist with some of the challenges insurers face when it comes to reducing unclaimed benefits. PPR 13, for instance, requires financial institutions to contact members of group schemes regarding their policies and not just rely on intermediaries or the employer to do this. There has also been a change in regulations to ensure benefits are paid only to nominated beneficiaries specified in a nomination form; in the absence of a valid nomination form, such benefits are paid to the estate of the deceased and distributed accordingly.
The FSCA released a Discussion Paper for public comment recently, with comments due 30 November 2022, discussing various other interventions around unclaimed benefits management. There are 13 recommendations that the regulator has proposed to ensure a holistic and consistent approach to the management of unclaimed benefits. One of the main recommendations the FSCA is proposing is the establishment of a single Central Unclaimed Assets Fund, where all recognised unclaimed assets can be transferred. The main objectives of this fund will be to accept and manage unclaimed assets, prioritise reuniting these assets with their beneficial owners, pay valid claims and distribute funds that are not reserved for claims for the benefit of positive impact.
An alternative recommendation to this is to require financial institutions to directly transfer the unclaimed assets to the National Revenue Fund instead of creating a new structure with the associated costs. The same recommendations regarding the identification, reporting, treatment, and reuniting of unclaimed assets will still apply equally, to both options.
Warm regards
Angela Kazembe
Governance and Risk Officer