Select Committee on Treasury Written Evidence


Memorandum submitted by the Investment & Life Assurance Group (ILAG)

1.  INTRODUCTION

  1.1  ILAG welcomes the opportunity of sending this position statement to the House of Commons Treasury Select Committee on its current inquiry into unclaimed assets within the financial system.

  1.2  The Investment & Life Assurance Group is a professional representative body in the UK concerned with the future of the investment, life assurance and pensions industry. It is led by practitioners and aims to identify and develop industry good practice. The Group currently has a growing membership of around 50 practitioner companies and associate members. In addition, a number of individual members are affiliated to the Group.

  1.3  It is customary for life insurance companies to offer a mixed portfolio of products including standard life assurance/protection, personal/occupational pension plans and savings/investment funds (with life cover). In outlining our basic approach to an unclaimed assets scheme below, references made to life insurance companies should be construed as relating to their whole range of products.

  1.4  Our basic approach to the potential application/ extension of an unclaimed assets scheme is as follows:

2.  DEFINITION, IDENTIFICATION AND COLLECTION OF UNCLAIMED ASSETS

  2.1  We believe that in operating a central or national scheme specific criteria be drawn up and adopted from the outset, namely that:

    —  firms' participation should be voluntary rather than compulsory;

    —  the period for determining unclaimed assets is extended significantly beyond 15 years of "no customer activity"; and

    —  firms should not be financially disadvantaged in having to meet late claims where the associated assets have otherwise been disbursed.

  2.2  Many firms take seriously their social and corporate responsibilities by sponsoring or making regular donations to charitable and welfare projects either within local communities or on a wider scale. It would be regrettable if these individual actions were to be prejudiced in any way by the operation of a universal scheme of asset disbursement. Hence for this reason, as well as other operational factors, participation in the latter by insurance companies should be of a voluntary nature subject to any overriding governance issues.

  2.3  In general, the insurance sector is very pro-active in its attempts to identify/locate policyholders both on an individual basis and in some cases in a collective manner by posting their identity on the Unclaimed Assets Register ref. http://www.uar.co.uk/

  2.4  However the task and cost involved for insurers in tracing claimants should not be underestimated on account of the varying length and duration of life policies, residential/geographical mobility, and the reality that in most cases contact between insurer and policyholder during the lifetime of the policy will have been minimal.

  2.5  Practical experience amongst firms points to a steady stream of claims being received many years after the last premium was paid often when relatives discover old policies belonging to the deceased policyholder. Where however it has not been possible to trace the holder the policy must still remain "live" for a considerable period to reflect the possibility of that person attaining maximum age ie 110 years of age.

  2.6  Insurance firms retain legal and financial liability for paying out on eventual policy claims even if assets have been disbursed elsewhere. In this context, firms will either need some form of financial indemnity to protect themselves against "loss of assets" or reimbursement provision where the assets have been transferred to an outside disbursement agency.

3.  DISTRIBUTION AND USE OF UNCLAIMED ASSETS

  3.1  We note previous proposals by the Commission for Unclaimed Assets to set up "A Social Investment Bank" to handle the disbursement of unclaimed assets for appropriate causes.

  3.2  Whatever type of organisation is finally agreed and set up, such a body should be responsible for both the collection and disbursement of assets in order to minimise administrative costs. Equally, if the Government supports the scheme then it should fund the establishment costs of the organisation which thereafter should function on an independent basis.

  3.3  As part of the Government's commitment to the scheme we believe that the criteria for aiding eligible projects should be limited to those designed to promote financial inclusion. Within this wide arena, proper scrutiny procedures need to operate to ensure legitimate applications and usage of monies to maintain scheme credibility.

4.  INTERNATIONAL COMPARISONS

  4.1  We are aware of similar schemes in other countries but do not have any evidence to submit in helping to identify best practice. However it is important that before any decisions are taken in the UK both the methods of operation and working experiences of other national schemes are fully assessed and quantified.

5.  OPERATING PRINCIPLES

  5.1  Any central or national scheme should provide for voluntary rather than compulsory participation by insurance firms (to reflect the additional operational difficulties that would otherwise face mutual insurers and insurance companies with closed funds).

  5.2  Precise definition of the term "unclaimed assets" is required in relation to the life insurance sector. Only money that has built up under an individual policy-holder's insurance plan—with the intention of being paid out either at the end of a specified period or on the policyholder's death—and remaining in the insurers' custodianship in the absence of a claim should be the only type of insurance asset capable of being defined as "unclaimed". Accrued funds held in inherited estates/ orphan assets and used as firms' working capital shall be excluded.

  5.3  The time-frame for determining "unclaimed assets" in respect of life insurance policies shall be (a) a period of 30 years from the date on which the insurer last had contact with the policy-holder or (b) in the case of a policy the benefits under which are payable only in the event of death, when the youngest person insured by that policy would have attained the age of 110 years (based on longevity data and firms' working experience).

  5.4  Within a national scheme, the collecting and disbursement arrangements should be vested in one organisation (thus minimising operational and money transfer costs) established with start-up funding from Government.

  5.5  The principal target area for the use of unclaimed assets shall be projects designated to address financial exclusion (an area recognised as a Government priority).

  5.6  As the legal and financial liability for meeting late claims has to remain with life insurance companies any national scheme should provide for companies to be reimbursed from the assets held in the central fund or for arrangements to be made whereby the liability can be reinsured externally.

6.  SUMMARY/CONCLUSION

  6.1  ILAG believes that a properly defined, organised and controlled scheme on unclaimed assets could operate in the UK complementing the financial contribution that insurance companies already make to worthy social and charitable projects on a local and wider basis. We would therefore be ready and prepared to participate in further discussions with interested parties should it be decided to extend such a scheme across the field of financial services.

February 2007





 
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