I move: "That the Bill be now read a Second Time."
For about a decade or so, the issue of dormant assets has attracted sporadic attention from Deputies on all sides of this House, as well as media interest in the potential there might be for the State to put these funds to good use. Failure, on the part of financial institutions to trace the owners of these moneys has long been a matter of public conjecture and concern.
Following on from the recommendations made by the Committee of Public Accounts Sub-Committee on Certain Revenue Matters, in its Report "Parliamentary Inquiry into DIRT" in 1999, I instructed my officials to set to work considering the complex constitutional, legal, operational, prudential and investment issues involved. This exercise led directly to the legislation which I brought forward last year, the Dormant Accounts Act, 2001. This dealt with dormant assets held by banks, building societies and An Post.
When drafting that legislation, it became apparent that application of the scheme to insurance products would prove more complex than was the case with accounts in banks or building societies. Therefore, for the sake of considering the matter further and to allow time to gain expert advice, it was decided to provide for unclaimed life assurance policies in a separate Bill. This Unclaimed Life Assurance Policies Bill is the result of considered and detailed analysis of the issues peculiar to policies of life assurance – not least, the analysis of EU law in the insurance sector.
I was aware that the successful development and implementation of the proposed scheme would require the full co-operation of the insurance undertakings and their representatives, as well as the advice and co-operation of the Department of Enterprise, Trade and Employment and the Revenue Commissioners. I am pleased to say that assistance from all these parties was always forthcoming and of enormous benefit.
This Bill builds on the Dormant Accounts Act. As is the case with that Act, this Bill achieves what I consider to be the best and most equitable balance between the rights of policyholders, and the desire that neither the insurance undertakings nor the State should be burdened with an unduly bureaucratic scheme.
The first purpose of this legislation is to ensure that proper steps are taken by financial institutions to identify and contact the owners of dormant funds. In that regard, this Bill is essentially a consumer protection measure, designed to protect the property rights of individuals.
If, however, the owners of funds cannot be traced, the institutions will be required to transfer those funds into a special fund established for the purpose, the Dormant Accounts Fund, to be established next year by the National Treasury Management Agency. However, no individual loses his or her right of access to these funds. The rightful owner will have a guaranteed right to reclaim funds at any time.
In the Dormant Accounts Act, 2001, I introduced a scheme for the disbursement for charitable purposes, or purposes of societal and community benefit, of funds which are not likely to be reclaimed. Moneys transferred to the fund under this new legislation will also be subject to that scheme, and therefore subject to disbursement. However, sufficient funds will always be held back to meet any potential claims from persons with an interest in these funds.
As Deputies will appreciate, there are any number of different types of life assurance policy on the market, as these 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 policy holder 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 the policy is a with-profits type, 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, be that when the policy has matured or, for example, by a beneficiary on the death of the policy holder. The amount to be paid out by an insurance undertaking is affected by all these factors.
Given the complexities of the issues surrounding the measurement of the encashment value of a life assurance policy, it has been impossible for my Department to build up an estimate of the amount of dormant funds held by the life assurance undertakings. Nevertheless, the amount is likely to be significant. Of course, the total value of any such policies is not the reason for moving forward with this legislation. Of primary importance is the need to make people aware that these policies exist and remain unclaimed.
As regards the amount to be transferred from any given policy, the insurance undertakings concerned will be required to calculate the net encashment value of the policy on the date of transfer. This will be the total amount that would be payable by the insurance undertaking if the policy holder were to realise the proceeds of the policy on that date. This is to be calculated net of any insurance considerations. A similar calculation will apply to the payments from the fund to the insurance undertaking in the event of a claim being made under the policy subsequent to the moneys having been transferred to the fund. Thus, the fund will only receive the assets which represent the investment portion of unclaimed policies. The amount required to provide insurance cover for the policy holder will remain the responsibility of the life company.
In relation to the relevant period of dormancy, following consultation with industry this will depend upon which of the two main policy types is being considered – those with a specified term which mature on a specified date, or those with no specified term. For the specified term policies, dormancy will occur where there has been no customer initiated communication with the insurance undertaking for a period of at least five years from the later of the date the policy matured or the date the policy holder 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. Deputies 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 which I am now proposing will provide a legislative framework which will improve regulation in relation to the handling and management of funds in mature but unclaimed life policies. Further, it will mirror and harmonise with the scheme which has already been put in place under the 2001 Act for banks, building societies and An Post.
The scheme will require all insurance undertakings operating in the State to actively take all reasonable steps to identify the beneficial owners of dormant life assurance policies with a view to at least alerting them to the existence of those policies. In the event that the owner or owners cannot be traced, the net encashment value of those policies will be taken into the care of the State, while guaranteeing the right of the ben eficial owners to subsequently seek a refund. The moneys will be held in the dormant accounts fund, to be established next year by the National Treasury Management Agency. The remit of the agency will be to prudently invest the moneys received from all the institutions, having regard to the possibility of claimants seeking a return of their moneys at a later date.
As the Deputies are aware, the 2001 Act already encompasses a scheme for the disbursement of surplus dormant funds for the benefit of charities and the community at large. Broadly speaking, the projects or programmes to benefit will be those designed to alleviate poverty or social deprivation, or to assist those who are physically or educationally disadvantaged. The current Bill provides that any moneys transferred from insurance undertakings to the fund will also be included in any disbursement scheme.
I would now like to set out a few of the key principles enshrined in the legislation which will be applicable to unclaimed life assurance policies. I should, perhaps, remind Deputies that while I am bringing forward the framework legislation it is my colleague, the Minister for Community, Rural and Gaeltacht Affairs, who will have primary ministerial responsibility for the scheme once it is up and running, especially for the disbursement aspects. This mirrors the existing position with regard to dormant accounts in credit institutions. The definition of Minister in section 2 provides for this to be the case.
I am very conscious that the moneys we are dealing with derive from the private property of individuals and that as such, they must be handled and invested extremely prudently, having regard to the constitutionally guaranteed right to private property and to the confidential nature of the relationship between the insurance undertakings and their customers.
The proposed scheme will apply to all insurance undertakings in the State and to all policies for life assurance which have been 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 have already 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 policy holder 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 and the date the policy holder last contacted the company. These definitions, which are set out in section 6 of the Bill, will be applied uniformly by all insurance undertakings.
Insurance undertakings will be obliged to personally notify customers whose policies are valued at €500 or above that they have an unclaimed policy with that undertaking and notify them of what steps to take to reactivate that policy or make a claim under it. For the sake of all other customers affected by the scheme, that is policies valued at less than €500 and non-correspondence policies, the insurance undertakings must place annual notices in two or more national newspapers. These annual advertisements, the first of which is scheduled to take place next January, will generate public awareness of the scheme. My hope is that this will encourage policy holders, 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 that institution. 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 the insurance undertakings to the dormant accounts fund to be established early next year. 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 I will help to draw up, but having regard to the need to meet the costs of making repayments to valid claimants seeking a return of their moneys. The main issue here is that not only is a claimant entitled to a return of the moneys transferred to the fund, but also to any interest and any investment return that he or she would have been due on those moneys, had they remained with the insurance undertaking. 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 re-applied to the fund. In that way, as set out in sections 14 to 16, policyholders are guaranteed the maintenance of their rights.
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 the 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 the policy holders, 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 inspections are contained in sections 18 to 25 inclusive.
Having highlighted these main features, I would now like to recap. In summary, the Bill provides for identification of the types of policies and undertakings to be covered by the scheme and those policies which will not be captured; the period of dormancy applying; the obligations of the insurance undertakings in relation to notification of policy holders that their policies may be deemed unclaimed; the procedure, including the timeframe, within which moneys which remain unclaimed are to be transferred to the dormant accounts fund to be managed by the National Treasury Management Agency; and the obligation on each undertaking to maintain a register of unclaimed policies which will contain the name and particulars of each policy holder 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; each undertaking to be obliged 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; the role of inspectors, whose remit will be to check compliance with the legislation on the part of the insurance undertakings; the maintenance of confidentiality in relation to 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.
The scheme established under the Dormant Accounts Act, 2001, enabled us to begin providing for a systematic approach to the regulation of dormant and unclaimed assets. It allowed for greater transparency in their treatment, as well as providing for an equitable and socially beneficial use of any surplus moneys identified. The current Bill, which is the result of lengthy and productive negotiations, represents a significant extension of that process and provides for a harmonised treatment of dormant assets throughout the financial services sector. It reflects the fact that the insurance sector is, for the most part, regulated by way of EU directives, but it goes further in focusing on the particular concerns we all have with regard to consumer protection when policies have long remained unclaimed. The Bill is an innovative piece of legislation and I commend it to the House.