The unclaimed funds within the life insurance sector are higher from policies sold by agents as against other channels like bancassurance or a digital platform, said analysts and officials from insurance companies.
Unclaimed life insurance funds refer to the proceeds of insurance policies including death or survival benefits not claimed by the beneficiary or the policyholder. Bancassurance means selling an insurance product through banks.
“The insurance companies can easily verify the bank details with the bank for bancassurance customers and also get new bank account, contact details and address from the bank based on Permanent Account Number (PAN) numbers.
"The updating of customer mobile and email in policies sourced through digital channels also helps to instantly connect with customers to get bank details during payout,” said Vighnesh Shahane, MD & CEO, Federal Ageas Life Insurance.
“In the case of agency channels, the attrition makes it difficult to connect with customers once the agent leaves the company,” Shahane added.
Recently, the Insurance Regulatory and Development Authority of India (Irdai) issued modifications in the master circular for unclaimed insurance.
The regulator directed the insurers to contact the customer 12 months instead of 6 months in advance before declaring the funds unclaimed amounts.
The regulatory notifications also include measures on communication with customers, updating their contact and bank details and adoption of digital methods like customer portals and apps, and advertisements in print/digital media to trace customers.
Swarup Kumar Sahoo, Senior Insurance Analyst at GlobalData, said Life Insurance Corporation of India (LIC) accounted for more than 90 per cent of the total unclaimed funds in the last five years.
“Since LIC generates most of its business through agents, we can estimate that agents-sold policies account for a major share of the total unclaimed insurance funds.
"However, the actual data-specific number on unclaimed funds by distribution channel is not available,” Sahoo said.
In FY23, the unclaimed insurance funds in the life insurance industry sharply declined to Rs 2.06 crore from Rs 4.82 crore in the year-ago period.
According to Vineet Arora, COO, HDFC Life Insurance, unclaimed funds are agnostic to distribution channels.
He said policyholders must notify their respective life insurers in case of a change in their contact details or a change in bank account.
“This plays a critical role in ensuring timely payouts of the benefits,” Arora said.
The unclaimed funds stay with the insurance provider until the rightful beneficiaries or policyholders initiate the claim.
Until then, the insurance companies invest the funds in segregated funds as per the guidelines of the regulator and return the funds to the policyholders when they reach out.
These unclaimed insurance funds are transferred to the Senior Citizens Welfare Fund after a period of 10 years.
“These funds are invested in a market-linked fund, and they generate positive returns.
"Whenever the customer claims their benefit, they get paid the original amount due plus the accretion due to positive NAV fluctuation,” noted Atri Chakraborty, COO, IndiaFirst Life Insurance.
Tarun Mathur, co-founder & chief business officer, PolicyBazaar believes the insurance regulator’s decision is a step in the right direction.
“I think more than the insurance companies, the formation of a central repository will help in reducing unclaimed funds.
"With this system, when the insurance regulators come up with something, other members in the ecosystem will come together to help and it will be easier for the companies,” he said.
The claim settlement ratio of the life insurance was 98.45 per cent in FY23, lower than 98.64 per cent in FY22.
The public sector life insurer was 98.52 per cent as of March 31, 2023 and private life insurer was 98.02 per cent.
