Reform inefficient succession processes

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In the 1990s, a newspaper highlighted how Life Insurance Corporation (LIC) of India proactively contacted victims’ families to inform them about the deceased passengers’ policies and assist with claims. To my naïve mind, it exemplified proactiveness on the insurer’s part. I later realised this compassionate approach was an exception reserved for high-profile cases, like air crashes. For most, claiming life insurance remains a cumbersome and frustrating process. 

Consider a case where an LIC policyholder whose policy had been active for eight years passed away. The spouse was the nominee. Despite a 2015 amendment to the Life Insurance Act mandating that claims on policies active for over three years cannot be denied, the claim process was anything but smooth. Requests for numerous documents, such as leave records, hospital certifications, and notarised forms, delayed the claim. The result was financial loss for the bereaved, who felt frustrated and angry.

 Successors often endure arduous procedures across the financial sector while trying to claim a deceased loved one’s assets. In one instance, a sick senior citizen nominee was compelled to visit a broking office. Each entity imposes its own rules and delays the process with impunity. Real estate transfers are even more complex, requiring court orders or certificates from revenue authorities.

 Such hurdles frequently result in successors abandoning smaller claims, contributing to over Rs 1.5 trillion in unclaimed assets across banking, insurance, securities (Investor Education and Protection Fund), mutual funds, small savings, and the Employees’ Provident Fund Organisation (EPFO).

 In January 2024, the Securities and Exchange Board of India (Sebi) introduced the Centralised Death Claim Reporting Process (CDCRP) to simplify succession claims. It mandates mutual funds (MF) and depository participants (DP) to notify KYC Registration Agencies (KRA) upon learning about an investor’s death. KRAs, aware of which MFDPs have dealt with the deceased in the past, then inform these entities, which must contact the nominees with the required documents to process the succession claim. This global-first initiative, taken in conjunction with recent steps to revamp the nomination process, has the potential to simplify the transmission process.

Sebi’s January 10, 2025, circular further streamlined the succession process in the securities market. It specified that only a standardised transmission form, death certificate, and nominee’s KYC documents can be sought for asset transmission. MFDPs are shielded from legal claims after transmitting assets.

 The circular introduced several other changes:

 – Increasing the number of nominees from three to 10 for greater flexibility;

 – Capturing nominee identity and contact details to streamline outreach;

 – Allowing nominees to complete KYC at any time;

 – Specifying how shares of a predeceased nominee should be distributed among other nominees;

 – Making it optional to name a guardian for minor nominees, encouraging couples investing jointly to nominate their children;

 – Introducing a provision to designate nominees for managing investments in case of incapacity.

 Truth be told, the inefficiency of current succession processes, besides frustrating grieving families, undermines the government’s ease-of-living agenda. While fears of fraudulent claims were once valid, advancements in digital systems have rendered such concerns outdated. 

Streamlined processes, on the other hand, could have a huge positive impact. For instance, one investor was astonished when their mutual fund transmission request was processed within 48 hours. Extending such efficiency to unclaimed assets and EPFO payouts would significantly ease life for countless families. 

Simplifying succession claims requires no additional budget — just the resolve to act. This government, which has a track record of achieving ambitious goals (like Jan Dhan) in mission mode, should bring similar focus to this area. It is time to make ease of succession an integral part of ease of living.  


The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; X: @harshroongta

Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

Mandatory disclosure by SEBI

(A slightly different version of this column first appeared in the Business Standard on Jan 26, 2025)

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