Agent-sold life policies likely to have higher unclaimed funds
LIC generates most of its new business through agents. This is evident, given that for public sector insurers like LIC, individual agents drove 96.14% of all new individual business in 2021-22. For private sectors, their contribution stood at 23.08%.
A recent analysis of unclaimed funds within the life insurance sector found that these funds stemmed majorly from policies sold by insurance agents, as compared to policies sold through other digital channels, or via bancassurance, where banks undertake the sale of insurance products. As per IRDAI’s annual report for 2022-23, there are a total of 26,28,208 life insurance agents active in the country.
Unclaimed life insurance funds refer to those proceeds not encashed or availed by the policyholder. These can either be death, or survival benefits. As per the annual report of LIC, India’s largest life insurer, for the year 2022-23, its outstanding unclaimed deposits and amounts balance stood at Rs 16,01,959.70 lakh as of March 31st, 2023. As per media reports, the unclaimed life insurance funds in FY23 reduced sharply to Rs 2.06 crore, as opposed to Rs 4.82 crore in the year before.
One of the major reasons why this happens is because when it comes to digital channels, the bancassurance department has complete and immediate access to all information of the policyholder, including contact details. However, when it comes to agency channels, where the agent serves as an intermediary between the insurer and the policyholder, it becomes difficult to establish contact with customers, if this agent leaves the company.
As per LIC data, it had around 13,47,325 agents on its roll as of 31st March, 2023, out of which active agents stood at 11,36,201. Notably, LIC generates most of its new business through agents. This is evident, given that for public sector insurers like LIC, individual agents drove 96.14% of all new individual business in 2021-22. For private sectors, their contribution stood at 23.08%.
However, as IRDA notes, the overall contribution of individual agents to individual new business premiums dipped marginally from 55.01% in 2021-22 to 52.76% in 2022-23.
The insurance regulator also recently announced major changes when it comes to unclaimed insurance. Insurers are now required to contact the policyholders 12 months in advance, as opposed to the 6-month timeline earlier, before declaring funds as unclaimed. All funds which remain unclaimed for a period of 10 years are transferred to the Senior Citizen Welfare Fund.