MUMBAI: Experts have criticised the life insurance industry for inadequate communication with policyholders or their nominees, outdated contact information, and lack of awareness, which have contributed to the staggering unclaimed funds amounting to Rs20,062 crore as of March 2024.
The Insurance Regulatory and Development Authority of India (IRDAI) disclosed this figure in its annual report, highlighting a persistent issue that burdens both insurers and consumers.
At the start of FY2023-24, the unclaimed funds stood at Rs22,237 crore. To address the problem, IRDAI launched a six-month special drive between June and November 2023, aiming to expedite refunds and contain further accumulation.
As a result of this effort, life insurers reported a net reduction of Rs1,018.23 crore in unclaimed amounts during the period. The progress was closely monitored on a monthly basis.
Industry is to blame
Recognising the systemic nature of the issue, IRDAI revised its ‘Master Circular on Unclaimed Amounts’ on February 16, 2024. The updated guidelines refined definitions, including that of ‘unclaimed amount,’ and suggested measures for insurers to ensure proper identification and efficient disbursement of these funds. The circular aims to help insurers address existing backlogs while preventing further accumulation of unclaimed funds.
Talking to businessbenchmark.news. a senior retired life insurance official said the huge pool of unclaimed funds points to the lack of awareness about the life insurance industry, and unless the issue is addressed properly, our insurance penetration will remain low compared with developed markets.
The large pool of unclaimed funds poses several challenges for the industry. Beyond highlighting inefficiencies in outreach and communication, it ties up resources that could otherwise be utilised for operational improvements or investments.
Additionally, the unclaimed amounts erode trust among consumers, who may perceive the issue as a failure on the part of insurers to fulfill their obligations.
Payment trends
Despite the unclaimed funds, the life insurance sector performed robustly in terms of payouts. During FY2023-24, the industry paid total benefits of Rs5.77 lakh crore, which constituted 70.22 per cent of the net premium collected.
Among these payouts, surrender and withdrawal benefits saw a significant 15.29 per cent increase, totaling Rs2.29 lakh crore. Public sector life insurers accounted for 58.36 per cent of these payments, underlining their dominance in the sector.
In terms of death claims, life insurers paid Rs48,512 crore during the fiscal year, a slight increase from Rs46,380 crore in the previous year. Individual policies accounted for Rs28,868 crore of these claims, while Rs19,644 crore came from group policies.
Awareness is key
Experts believe that greater awareness campaigns, regular updates of policyholder information, and enhanced use of technology could significantly reduce the problem. IRDAI’s recent initiatives are a step in the right direction, but the onus lies on individual insurers to ensure sustained improvements.
As the life insurance industry grows and touches more lives, addressing these gaps becomes critical not only to safeguard consumer interests but also to enhance the credibility and efficiency of the sector.
