Regulator plans portability of life insurance policies
COVER DRIVE You may be able to switch firms without surrendering your policy
The Insurance Regulatory and Development Authority of India, or Irdai, is considering allowing life insurance policy holders to change their insurer without surrendering their existing policies and thus losing a portion of premium paid. In 2011, Irdai first allowed portability in health insurance policies.
Three persons, including a regulatory official, said discussions to allow portability in life insurance are in early stages and is likely to happen after the industry moves to a completely digital form or transacting and managing insurance products. They did not wish to be identified as the discussions are yet to be formalized.
India’s life insurance sector is the biggest in the world with about 360 million policies. This number is expected to grow at an annual average of 12-15% over the next five years, according to the India Brand Equity Foundation, a government trust under the department of commerce.
By allowing portability, the insurance watchdog aims to save customers from the cost of surrenders while changing policies if they are unsatisfied with their existing insurance company. Portability can make the policyholder’s life easier in terms of services he deserves and the cost he pays to be insured, said the first person cited earlier.
The plan is also in line with the government and Irdai’s aim to curb rampant mis-selling of insurance products in the country, said this person.
Under current rules, such a transfer is not allowed. If a policy holder wishes to discontinue her policy before it reaches maturity, she has to pay a “surrender charge” which can be as much as 70% of premiums paid till date.
The first person said that portability will need changes in underwriting policies for insurers, standardisation of prices, mortality and morbidity rates used by different insurers, and mandatory electronic issuance. On 28 March, Mint reported that Irdai is planning to ask life insurers to issue policies only in a dematerialized (demat) format beyond a specified threshold premium. A demat format for insurance serves the same purpose as for equities: It is a single-view, paper-free, safe format which will also cut processing charges for insurance companies and potentially reduce premiums too.
“Trust is the main factor in the insurance industry and portability can bring better efficiency in the sector,” said the second person cited earlier. “It will take some time though since some work needs to be done.”
For one insurer, taking over the liability of another insurer for a customer is not easy since the basic style of underwriting varies. An important underlying factor for portability is the presence of a central repository. Though repositories are present, their businesses are at a very nascent stage right now. “If we have an insurance repository as a single point contact to provide the information of a particular person, portability can be possible,” said the second person.
Initially, the regulator will likely allow insurers to choose if they want to pick up the liability of a customer from a rival, said the third person cited earlier.
Once the information about a customer is made centrally accessible through a repository, either for continuation or surrender of a policy by any given customer profile, the terms and charges for switching from one insurer to another can be mutually decided by the two concerned insurers, depending on the period for which the customer has already paid his premium, this person added.
Portability “may be possible only for certain products which may have similar structures and charges,” said Amitabh Chaudhry,MD andCEOofHDFCStandard Life Insurance Co Ltd. “Portability will require considerable changes in the underwriting policies and the rates for several products may have to be standardised.”
India’s life insurance sector is the biggest in the world with about 360 million policies