In step with its efforts to make the sector more consumer-friendly, Insurance Regulatory and Development Authority of India (Irdai) has mandated that insurers now show all unclaimed amounts of policyholders as a separate line in their balance sheet under current liabilities. The unclaimed amount will continue to be governed by investment norms applicable to the funds. To avoid any downside risk to the unclaimed amounts of unit-linked funds, these will be invested in the specified fund for discontinued policies.
A May 28 circular issued by the Irdai states that insurers will have to credit the investment income accruing on the unclaimed amount to the respective identified unclaimed account. Insurers, however, can recover administrative and fund management expenses from the unclaimed amounts. The recovery cannot exceed 50 basis points per annum of the funds at the close of the financial year.
The unclaimed amounts, the investment income accrued on the amount and the investment representing such amounts will not be counted towards computation of the solvency margin. Also, there may be instances where insurers have issued cheques against the outstanding unclaimed amounts but some of these cheques may not have been encashed by the policyholders. In such cases, the circular makes it clear that after the expiry of the validity period of the cheques, the amount will have to be credited back to the unclaimed amount.
However, the age-wise classification of such amounts shall continue from the original date of the unclaimed amount.
In a 2010 circular, Irdai had said that insurers cannot appropriate the unclaimed amount of policyholders and must disclose the same as a separate line under the current liabilities head in the balance sheet. Till 2010, insurers did not disclose the unclaimed amount separately. Analysts say the recent circular adds more clauses on disclosures of unclaimed amount and is more transparent.
Between 2009-10 and 2012-13, there has been a more-than-three-fold increase in unclaimed money with insurance companies. Delay in settlement of claims, lack of awareness and change in address on part of dependents have pushed up the amount of unclaimed money to R4,866 crore in 2012-13 from R1,373 crore in 2009-10.
Analysts attribute the spike in unclaimed amount to multiple reasons. For one, claims settled by insurers may not have been paid because of litigation from policyholders. Second, there could be excess premium collected by the insurer and not refunded to the policyholder at the time of claim settlement or maturity payments. At times, even policyholders forget to encash the cheque issued by the insurer or the cheques get misplaced in transit. The insurance regulator has asked the policyholder protection committee of the board of insurance companies to ensure timely payouts of the dues.
The audit committee of the board will also have to look into the unclaimed amount and oversee compliance every six months. The insurer will have to file details of the action taken and status of the unclaimed amount to the regulator.
Last year, Irdai had asked insurers to display information on any unclaimed amount above R1,000 on the company’s website. A policyholder can fill out his name, policy number, PAN and date of birth on the website and, if the information in any two fields matches with the insurer’s records, the unclaimed amount lying with the company gets displayed.
For new policies, the regulator had made it mandatory for insurers to ask for bank details of the proposer in the proposal form itself. To authenticate the details, the insurer will need to take a cancelled cheque from the proposer, except in cases where the payment of the new business premium is done through a cheque from his own bank account. The insurer will have to retain a copy of the cheque issued by the proposer. Also, the insurance company will have to provide an option to the insured to change the bank account or modify bank details, withsout charging any fee.
However, the regulator had listed some exemptions where one need not disclose the bank account details. All term insurance policies (without return of premium) are exempted from sharing of bank details.
For a death claim, bank details of the nominee will be taken by the insurer at the time of the claim. The policyholder will not have to furnish bank details in cases where the bank account is not linked to RBI’s core-banking solutions, as is the case with cooperative or regional rural banks. Also, one would not have to give bank details where the annualised premium payable is up to R25,000.
It’s not loose change
Between 2009-10 and 2012-13, there has been a more-than-three-fold increase in unclaimed money with insurance companies.
A May 28 Irdai circular states that insurers will have to credit the investment income accruing on the unclaimed amount to the respective identified unclaimed account. Insurers, however, can recover administrative and fund management expenses from the unclaimed amounts.
The unclaimed amounts, the investment income accrued and the investment representing such amounts will not be counted towards computation of the solvency margin.
Analysts say the recent circular adds more clauses on disclosures of unclaimed amount and is more transparent than its earlier versions.
Experts attribute the spike in unclaimed amount to multiple reasons, ranging from litigation by policyholders, excess premium collection and misplaced cheques to policyholders forgetting to encash the cheque.