I am pleased to have the opportunity to address the House regarding the Unclaimed Life Assurance Policies Bill 2002. I trust that the House will agree that its enactment will result in a significant step forward in the strive for consumer protection, as well as building on the laudable scheme for disbursement of moneys to worthwhile projects established under the Dormant Accounts Act 2001.
The House will no doubt recall the considerable publicity that surrounded the introduction of the dormant accounts scheme last year. I am also sure that it is aware that interest in the matter is not new. The issue of dormant assets has long been of great interest to the public, both Houses of the Oireachtas and the media – primarily in the potential there could be for the State to put the funds to good use. Failure on the part of the financial institutions to trace the owners of these moneys has long been a matter of public conjecture and concern.
With the Dormant Accounts Act, the Minister for Finance and the Government established the basic framework for addressing these concerns. The Act deals with dormant assets held by banks, building societies and An Post. Its success in meeting its primary goal, reuniting people with long lost or forgotten assets, has been significant, with almost half the moneys which lay dormant last March having been reclaimed in less than 12 months. It is not often that legislation emanating from the Department of Finance results in such an obvious windfall to members of the public. The successful achievement of this objective of the scheme is commendable.
This Bill shadows the Dormant Accounts Act in providing that life companies must take all reasonable steps to identify and contact the owners of unclaimed life policies. It is open to question what is reasonable in this regard but we can rest assured it is in the interests of insurance undertakings to pull out all the stops to reach their customers in circumstances where they will lose the underlying funds, yet still have to administer the policies if they fail to trace the owners. Therefore, the Bill is essentially a consumer protection measure, designed to protect property rights of individuals.
The legislation must also deal with the situation where the owners of funds cannot be traced or these owners do not come forward to claim their moneys. In these circumstances, the insurance undertakings will be required to transfer the net encashment value of the policies, as defined in the Bill, to the dormant accounts fund due to be established in the coming weeks by the NTMA. I stress the point that no individual will lose his or her right of access to those funds. The rightful owner, including the policyholder or, for example, his or her heirs, will have a guaranteed right to reclaim the funds at any time. The Bill provides that the amount repaid will be exactly what the policyholder is entitled to claim under the terms of the policy.
It must be expected, nevertheless, that some policyholders, for whatever reason, will never come forward to claim the moneys due. For example, the policyholder may have died without informing his or her heirs of the existence of the policy. The person may have emigrated and discontinued correspondence with the life company or decided that the amount due under the policy was not worth pursuing. Therefore, the Dormant Accounts Act introduced a scheme for disbursement, for charitable purposes or purposes of societal and community benefit, of funds not likely to be reclaimed. Moneys transferred to the fund under this new Bill will be subject to the same disbursements scheme. However, this is still on the basis that sufficient funds will be held back to meet any potential claims from owners.
There are many types of life assurance policy on the market as products are often tailor-made to suit an individual's needs. This has a significant bearing on two important aspects of the Bill: the amount that an insurance undertaking will be required to transfer to the dormant accounts fund in respect of an unclaimed policy and the criteria for "dormancy".
There are a number of issues to consider in relation to what is owed to an individual under any particular life assurance policy. Unlike a bank account, the money is not there "up front", in a way that the customer and the insurance undertaking know exactly what is owed on any given day. First, the majority of policies provide risk cover as well as having an investment element designed to secure a lump sum for the policyholder at some future date. In practice, the weighting of these two elements varies widely, depending on the needs of the policyholder and, therefore, the type of policy in question. Second, the investment element may be underpinned by a company's asset managed funds, as in the case of unit linked policies. If it is a with profits type policy, it will have other conditions attaching to it. Third, a life assurance policy is a contract that sets out the conditions under which a claim can be made and by whom – it may be when the policy has matured or, for example, by a beneficiary on the death of the policyholder. The amount to be paid out by an insurance undertaking is affected by all three factors.
Given the complexities of the issues surrounding the measurement of the encashment value of a life policy, it has been impossible for the Department of Finance to build up an estimate of the amount of dormant funds held by life companies. Nevertheless, it is believed to be significant but this is not the reason for moving forward with the legislation. Of primary importance is the need to make people aware these policies exist and remain unclaimed. This will be done via personal notifications to policyholders and also by way of public notices to be placed annually in national daily newspapers and prominently displayed in the public offices of the companies concerned. This year alone, four separate notices will be placed in the newspapers in relation to the dormant accounts scheme.
As regards the amount to be transferred from any given policy, insurance undertakings will calculate the net encashment value on the date of transfer to the fund. This will be calculated net of any insurance considerations in order that the fund will only receive the assets representative of the investment portion of the unclaimed policy. The amount required to provide insurance will remain the responsibility of the life company.
In relation to the relevant period of "dormancy", the Minister has taken account of the disparate nature of life policies and provided that this will depend on whether we are dealing with a specified term or non-specified term policy. For specified term policies, dormancy will occur where there has been no customer initiated communication with the insurance company for a period of at least five years from the later of the date the policy matured or the date the policyholder last made contact with the undertaking. For policies with no specified term, dormancy will occur where there has been no customer initiated communication with the undertaking for at least 15 years. Senators will recall that 15 years is the dormancy period applicable to banks, building societies and An Post under the Dormant Accounts Act 2001.
The scheme proposed will improve regulation in relation to unclaimed life policies and mirror and harmonise with the scheme already in place for credit institutions. It will require institutions to do their best to contact policyholders and reunite them with their moneys. It will also generate further funds for disbursement to charities and the community at large. Broadly speaking, the programmes or projects to benefit will be those designed to alleviate poverty or social deprivation or assist those who are physically or educationally disadvantaged. I am sure the House will agree this is a commendable use for the moneys which have, until now, benefited only the financial services sector.
I will now outline a few of the key principles enshrined in the Bill but, in particular, should point out that, though the Minister for Finance is bringing forward these proposals, it is the Minister for Community, Rural and Gaeltacht Affairs who will have primary ministerial responsibility for the scheme, especially the disbursement aspects. The proposed scheme will apply to all insurance undertakings in the State and all policies of life assurance taken out by Irish residents, other than policies which form part of the assets of occupational pensions schemes, group health insurance or disability benefit schemes and sponsored superannuation schemes. The application of the provisions of the Bill is set out in section 6.
The fundamental basis for the scheme lies in how "dormancy" is assessed. As I indicated, under the proposed scheme a non-specified term policy will be deemed unclaimed where the insurance undertaking has received no customer initiated communication with respect to the policy for at least 15 years prior to commencement of the scheme. A specified term policy will be deemed unclaimed where the policyholder has made no contact with his or her insurance company in relation to the policy for at least five years from the later of the date the policy matured or the date the policyholder last contacted the company. These definitions, set out in section 6, will be applied uniformly by all insurance undertakings.
Insurance undertakings will be obliged to personally notify customers whose policies are valued at €500 or more that they have an unclaimed policy with that undertaking and what steps the customer must take to reactivate the policy or make a claim under it. Insurance undertakings must, for the sake of all other customers affected by the scheme, place annual notices in two or more national newspapers. These annual advertisements, the first of which is scheduled to take place in March, will generate public awareness of the scheme. The Minister for Finance believes, given the success of the same procedures under the 2001 Act, that this will encourage policyholders or their heirs or executors to make contact with the insurance companies to see whether they stand to gain under the terms of a policy held at the institution concerned. Notification procedures are provided for in sections 8 and 9.
The framework provides that the net encashment value of unclaimed life assurance policies, where the policies remain unclaimed by March each year, must be transferred by insurance undertakings to the dormant accounts fund soon to be established. The first transfers will take place by April 2004. These matters are provided for in sections 10 and 11. The National Treasury Management Agency will be required to invest these moneys prudently, based on guidelines which the Minister for Finance will help to draw up and having regard to the need to meet the costs of making repayments to valid claimants seeking a return of their moneys. The moneys in the fund will generate an investment income, some of which will be used to offset the costs of accruals payments to claimants and the rest of which will be reapplied to the fund. In that way, as set out in sections 14 to 16, policyholders are guaranteed the return of everything owed to them.
The Bill also provides that the regulatory authority – currently the Minister for Enterprise, Trade and Employment but at some point the proposed Irish Financial Services Regulatory Authority – is entitled to appoint inspectors for the purpose of ensuring compliance by undertakings with the provisions of the legislation. The inspectors will be authorised to check that an insurance undertaking has the necessary systems and procedures in place that will ensure undertakings are attempting to make contact with policyholders and that all relevant moneys are being transferred to the dormant accounts fund. Inspectors will be entitled to inspect the undertaking's records for these purposes and will have access to any relevant records held by the National Treasury Management Agency in respect of transfers to the fund. The provisions with regard to inspection are contained in sections 18 to 25, inclusive.
In summary, the Bill provides for, first, identification of the types of policies and undertakings to be covered by the scheme and those policies which will not be captured; second, the period of "dormancy" applying and, third, the obligations of insurance undertakings in relation to notification of policyholders that their policies may be deemed "unclaimed". Other key points are the procedure, including the timeframe, within which moneys which remain unclaimed are to be transferred to the dormant accounts fund.
The Bill also places an obligation on each undertaking to maintain a register of unclaimed policies which will contain the name and particulars of each policyholder whose policy has been deemed unclaimed. It will also contain details of the class of policy, the amount transferred to the dormant accounts fund and the date of transfer to that fund.
There will be an obligation on each undertaking to complete a certificate of compliance with the provisions of the legislation in order that any failure on the part of undertakings can be quickly identified. In addition, the role of the inspector, whose remit will be to check compliance with the legislation on the part of the insurance undertakings, has been detailed.
Other features of the legislation are required from an operational standpoint, such as the maintenance of confidentiality regarding ownership of the moneys in unclaimed policies and amendments to the Dormant Accounts Act 2001 to ensure the entitlement of the NTMA to manage and invest moneys realised from unclaimed life assurance policies, and to entitle the board to disburse surplus of such moneys. There are also the standard provisions for commencement, interpretation, etc., that are found in a Bill of this nature.
This Bill, which is the result of lengthy and intensive negotiations, represents a significant extension of the scheme established under the 2001 Act. The provisions of the Bill were finalised during the period when the dormant scheme began operating in the credit institutions, which provided great insight into how it might work in practice for the life assurance companies. The Minister has been reassured by the success of the scheme for dormant accounts. Its achievement to date in reuniting people with their money represents an important consumer protection measure. It is hoped that the benefit to policyholders will be as great as it has been to holders of dormant accounts. This Bill is innovative legislation which I commend to the House.