Reg­u­la­tor plans porta­bil­ity of life in­sur­ance poli­cies

Hindustan Times (Delhi) - - Front Page - Anirudh Laskar [email protected]

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.”

GETTY IM­AGES

In­dia’s life in­sur­ance sec­tor is the big­gest in the world with about 360 mil­lion poli­cies

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