Unclaimed billions: push to trace beneficiaries

PF

Illustration: Colin Daniel

South African life assurance companies are to redouble their efforts to track down the many unknown thousands to whom they owe benefits that could amount to billions of rands.

The industry body, the Association for Savings & Investment SA (Asisa), cannot say how much money is in the coffers of the companies instead of the pockets of policyholders or their beneficiaries, but it has decided that member life assurance companies must intensify efforts to unite unclaimed assets with their rightful owners.

This week, Asisa announced a Standard on Unclaimed Assets, which sets down a fixed procedure for tracing claimants that will apply to all its life assurance company members from June next year. After that it will be rolled out to include the unit trust industry and even possibly the retirement fund industry, where the total value of unclaimed benefits is understood to be greater than that of the life industry.

Banks may consider introducing similar measures, particularly when they become subject to regulation by the Financial Services Board (FSB) in terms of the soon-to-be-enacted “twin peaks” policy and the proposed new Treating Customers Fairly regulations.

Peter Dempsey, deputy chief executive of Asisa, says the new standard has been drawn up to meet the proposed requirements of Treating Customers Fairly. The FSB was consulted extensively during the drafting process of the new standard and supports the initiative.

Dempsey says the reasons for benefits being unpaid include:

* Policyholders do not advise assurance companies of changes to contact details;

* Policyholders die and there are either no nominated beneficiaries or their contact details are out of date; or

* People simply forget about a policy they may have taken out many years earlier and lose the policy documents.

The main elements of the new standard are:

* Prescription will not apply. Dempsey says that in terms of prescription law, a debt need not be paid after three years. An unpaid benefit is a debt of a life assurance company to a policyholder.

He says all the large life companies have never applied prescription, although some small ones have.

In terms of the new standard, prescription will never apply – even to a claim made 100 years from now, if it is provable and legitimate.

* A life company may never take ownership of unclaimed assets. However, any money that remains unclaimed by the time the original policyholder is recorded as reaching the age of 100 may be invested in social responsibility initiatives that offer a return on capital.

Any claimant would still be entitled to a benefit due to them.

Dempsey says, however, that because of the new standard, Asisa expects more beneficiaries to be traced, leaving less for investments at the 100-years-of-age mark.

* Unclaimed investments will not be merely shifted into money market-type portfolios at maturity– often providing below-inflation returns – as a number of companies have done in the past. The companies have argued that they have to protect the capital value at maturity.

The life companies must hold and grow unclaimed policy benefits until the rightful owner is found, no matter how long it takes (or at least until the policyholder reaches 100 years of age). A company must make sure that the money is invested in such a way that the policyholder or beneficiary, once traced, receives an amount in line with the expectation created by the risk policy or investment policy contract.

Dempsey says this means that investment policies must aim to achieve returns in line with reasonable customer expectations across a range of stock market conditions.

In other words, if you select a market-linked return at inception and the same choice remains at maturity, your policy will remain in the same underlying investment portfolio until the benefit is paid.

This, however, will not apply to risk policies, where the benefit amount will remain the insured amount.

* Asisa members are required to intensify efforts to trace policyholders or beneficiaries in order to minimise the pool of assets that remain unclaimed.

As from June 1 next year, life assurance companies will be obliged to start a process of tracing policyholders or beneficiaries within six months of the assets becoming payable, either as a benefit or a maturity payment.

If the rightful owner of the assets cannot be traced, the life company must repeat the tracing process within a three-year period and again within 10 years if the assets remain unclaimed.

If, after 10 years, the life assurance company cannot trace the beneficiaries or policyholder, an external tracing company must be used. The only time this requirement may be waived is if the assets are worth less than R1 000 and the cost of tracing exceeds the amount payable.

In terms of the standard, any reasonable administrative and tracing costs incurred after the first attempt to trace the rightful owners may be recovered from the unclaimed assets.

POLICY DOCUMENT CHANGES

Life assurance companies will make a greater effort from June 1 next year to help ensure that your benefits are paid to your estate or beneficiaries in the event of your death.

Peter Dempsey, deputy chief executive of the Association for Savings & Investment SA (Asisa), says if you buy a life product from June next year, the policy documents need to inform you of the following:

* That you are responsible for keeping your contact information up to date;

* The steps that will be taken by the life assurer to trace you or your beneficiaries should your assets remain unclaimed;

* That administrative, management and tracing fees may be charged on any unclaimed assets, therefore reducing the benefits payable; and

* How unclaimed assets will be invested in the case of an investment policy, or what interest will be paid on any unclaimed risk policy benefits.

Dempsey says you will also be asked to consent to the life assurer sharing your personal information with a tracing company to facilitate tracing beneficiaries should your assets remain unclaimed.

If you are an existing policyholder, you can expect your life assurance company to provide you with this information as part of its regular communication to clients, such as annual benefit statements.

The new standard requires member life assurance companies to report to Asisa once a year on statistics of tracing activities conducted and cases that have not been settled within three years. These statistics will be made available to the Financial Services Board.

WHAT TO DO TO ENSURE A PAYOUT

As an investor/policyholder, you should, when taking out a life assurance risk policy and/or any investment, ensure that:

1. Your contact details are up to date. This includes your postal address, email address and telephone numbers.

2. You name a beneficiary or beneficiaries to a life assurance policy. This would include a life assurance risk policy, a life assurance endowment (investment) policy and a retirement annuity. In doing so you should provide: the identification number of the beneficiary, the relationship of the beneficiary to you, and the address of the beneficiary. You should regularly update the details of your beneficiaries.

(Remember that, by naming beneficiaries, the benefits will go directly to them on your death and will not be subject to delays or executors’ fees.)

3. You keep a list of all your life assurance policies and investments, along with things such as your will. You must let someone know where you keep the information so it can be found if you die suddenly or are severely incapacitated. A good idea is to leave the information with the person likely to help your loved ones with your estate when you die, such as a proposed executor, financial adviser or lawyer.

4. You check old investments you may think are worthless. If you have an old policy or unit trust investment with a company that no longer exists, you may be in for a pleasant surprise. To trace what happened to the company and who controls that investment, you can contact the Association for Savings & Investment SA (Asisa) on 021 673 1620.

5. If you believe that someone who has died had a policy or an investment that has not been paid out, you can also contact Asisa. You will need to download from www.asisa.org.za a “Lost policy circular form” to inquire about the policy of a deceased relative. Look in the “Info Centre” section of the site under “Long Term Insurance”.