Also, the regulator has instructed insurance companies to deploy unclaimed funds in money market instruments or fixed deposit of scheduled banks.
IRDAI has allowed insurance companies to charge a management fee of up to 0.20% or 20 bps per annum for managing unclaimed amount. The unclaimed amounts accumulate due to non-encashment of maturity proceeds by policyholders.
However, the discretion to decide if they wish to charge this fee is up to the insurers. Insurers may choose not to charge any fee for deploying these unclaimed proceeds.
Today, most investors opt to receive their bonus or redemption proceeds directly in their bank accounts through electronic clearing service (ECS). But instances of bonus or redemption cheques returning to insurers because of non-updation of address with the company were quite common earlier.
Insurers are instructed to maintain a segregated fund to manage all unclaimed amounts.
Insurers cannot take possession of the unclaimed corpus. The insurance regulator has instructed insurance companies to deploy unclaimed proceeds in money market securities. Also, if insurers don’t find it feasible to park money in money market, they can invest in bank fixed deposits. If the company receives claims from investors, they can redeem a proportionate amount of securities and pay it to investors.
Insurers are expected to remind their investors to claim their proceeds. Also, they are expected to give such details along with the number of investors in the annual report, said a senior official of a private sector life insurance company.
Last year, IRDAI had instructed insurance companies to disclose the details of unclaimed amount on their respective websites in order to arrest the growth of unclaimed money. The regulator had asked insurance companies to disclose details of those policies where payment exceeded Rs 1,000.
IRDAI data shows that the unclaimed amount lying idle with insurance companies increased by 60% to Rs. 4,866 crore in FY 2012-13 from Rs 3,038 crore in FY 2011-12. In FY 2009-10, the unclaimed amount was Rs 1,373 crore. The regulator attributed this to lack of awareness, delay in claim settlement process and change in address of policyholders.