New ASISA standard on unclaimed assets

The new standard replaces the Code on Unclaimed Benefits introduced by the former Life Offices' Association and adopted by ASISA in 2008 which was silent on what to do if beneficiaries cannot be located. For now the new standard only applies to unclaimed long-term insurance benefits, but the intention is to expand it to include collective investment scheme assets, as well as pension fund benefits.

The main elements of the new standard are:

1. Prescription will not apply (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).
   
2. 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.
   
3. ASISA members are required to intensify efforts to trace policyholders or beneficiaries in order to minimise the pool of assets that remain unclaimed.
   

In short:

• As from 1 June 2013, 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. Any reasonable administrative and tracing costs incurred after the first attempt to trace the rightful owners may be recovered from the unclaimed assets.
  
• If a policyholder or beneficiary has not been located by the time they turn 100 years old, the company concerned has the right to release assets from the reserve account backing the unclaimed assets. This money must be invested in socially responsible initiatives that earn a reasonable commercial rate of return. At no point can it be moved to a company's balance sheet. This is because the beneficiaries and their dependants will always have a claim on those funds.

The effect of this on the life business is that, as of 1 June, if you buy a life product, the policy documents need to inform the policyholder of the following:

1. That he/she is responsible for keeping their contact information up to date;
   
2. The steps that will be taken by the life assurer to trace the policyholder or their beneficiaries should his/her assets remain unclaimed;
   
3. That any reasonable direct, administrative, management and tracing fees may be charged on any unclaimed assets, therefore reducing the benefits payable;
   
4. 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; and
   
5. The policyholder will also be asked to consent to the life assurer sharing their personal information with a tracing company to facilitate tracing beneficiaries should their assets remain unclaimed. For existing policyholders the life assurance company should provide the policyholder 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.