A gap the life industry should be talking about

Gareth Stokes, FAnews Online Editor

Life companies pay out billions in claims each year. Peter Dempsey, deputy chief executive of ASISA, says the life industry paid beneficiaries, policyholders and pension fund members benefits in excess of R75.7bn (R43.6bn to individual policyholders and R32.1bn to group schemes and pension funds) in the first half of 2009. The consumer side of the life insurance industry should be fairly simple. You identify a risk, consult a financial planner and choose a product with appropriate cover, decide on the beneficiaries of the policy where appropriate, religiously pay your premium, and – when the insured event comes to pass – claim your benefit. But it’s not always this plain sailing. Often disputes arise between you and the insurer as to the validity of your claim. And in extreme cases – if you’ve forgotten about the policy or your beneficiaries cannot be traced – the benefit ends up on the insurer’s balance sheet. Welcome to the world of unclaimed benefits.

An unclaimed benefit is a claim on which notification has been received and for which all subsequent attempts by the insurer to locate the claimant have been unsuccessful. Jimmy Miller, Senior Manager: Claims at Metropolitan Risk, says “unclaimed benefits [at Metropolitan] are more or less equally spread between maturity and death benefits on life policies.” A small percentage of such monies relate to funeral business.

What happens if the insurer cannot trace a policy beneficiary?

South Africa’s large life companies are members of the Association of Savings and Investments SA (ASISA). As such they should adhere to the Life Offices’ Association Code on Unclaimed Benefits – as compiled by the previous life industry representative body – and subsequently adopted by ASISA. This code deals with the steps life companies must take to track down beneficiaries of the fund among other best practices. “All claims are followed up for a period of three years after notification, in accordance with the Code,” says Miller. Typical steps include attempts to track the client through his/her adviser or with assistance from a tracking agency or external database. “If all attempts [to trace the beneficiary] have been unsuccessful, the claims are written to an inactive account,” he says.

Old Mutual operates in much the same way. “Most people claim within the first three to six months after the maturity date – and 80% of customers claim within three years,” says Piet Spreeuwenberg, Client Services Manager at Old Mutual. He goes on to describe the unclaimed benefits account as a rolling number representing claims in process. The problem is people who don’t claim their benefits at (or near) maturity date could fall through the cracks!

How much are we talking about?

We spoke to two of the larger players in the domestic life industry to find out how much cash is sloshing around in unclaimed benefit (or similar) accounts. Metropolitan Life says the total value of outstanding claims at year-end 2009 amounted to R1.458 billion (up from R1.2 billion in 2008), while Old Mutual claims to hold approximately R3 billion (incidentally unchanged since they shared the information with Bruce Cameron of Personal finance a year ago). “It should be noted that if a policyholder fails to claim benefits at maturity, the policy proceeds are shown as unclaimed benefits with effect from the maturity date,” says Spreeuwenberg. In other words the R3 billion includes benefits subject to claim.

What happens to the funds that remain unclaimed? “At Metropolitan Life, the unclaimed benefits are accounted to separately and accrue interest at a money market related rate,” says Miller. Old Mutual has a slightly different approach. Returns on unclaimed benefits are determined by the nature of the underlying investment portfolio or policy provisions.

Spreeuwenberg elaborates:

“In the case of a policy with a fixed maturity date (such as the majority of Retirement Annuity and endowment policies) the growth typically resembles the return on short-term cash instruments (as the proceeds can be claimed at any time), after adjusting for income tax (where applicable) and a small administration fee, whilst the return earned in the case of so-called ‘open-ended’ contracts is typically the same as the underlying investment portfolio.

“In the case of policies providing for risk benefits (such as policies predominantly providing for death cover) benefits are calculated in accordance with the contractual provisions which differ from contract to contract. (Depending on the contractual provisions the death benefits can for instance be dependent on the date of death of the assured, or in other cases, on the date of the claim.)”

A bit of insurance terminology might make this section clearer. “Life assurance policies often have specific maturity dates in terms of which benefits become contractually due,” says Spreeuwenberg. New generation policies are often ‘open ended’ and have no specific maturity date. A unit trust account is an example of an ‘open ended’ product. In the event of the death of a unit trust account holder the account forms part of the deceased estate and is dealt with by the executor. Robert Walton, head of Metropolitan Asset Managers (which includes Metropolitan Collective Investments) says unclaimed benefits don’t apply to unit trusts products. “Investments of this nature remain in investors’ names forever – if the ‘depositor’ is unknown the asset reverts to the state after 30 years,” he said.

How to reclaim unclaimed benefits

“Claims against funds moved to ‘inactive’ accounts are always honoured,” says Miller. A beneficiary requiring assistance to claim his/her money can contact Metropolitan Life or approach the offices of ASISA. If you believe you are the beneficiary of an Old Mutual policy you should approach your nearest Old Mutual branch. You should provide as much information as possible, including the policy contract, the identity document and bank details of the claimant, a death certificate (in the event of the death of a life assured), etc.

Editor’s thoughts: The Code of Unclaimed Benefits requires life companies make every effort to contact policy beneficiaries. In the event they cannot trace the beneficiary these funds are swept into an ‘unclaimed benefits’ account. And if they haven’t traced a beneficiary within three years of maturity it’s up top the beneficiary to approach them! We’d love to hear any of your unclaimed benefit experiences. Add your comments below, or send them to gareth@fanews.co.za