India Today

INSURANCE POLICIES TO GO PAPERLESS

By the end of this year, all new insurance policies are likely to be available in demat form

- —Narayan Krishnamur­thy

The Insurance Regulatory and Developmen­t Authority of India (IRDAI) is exploring ways to make it mandatory for all new insurance policies issued from December 2022 to be in dematerial­ised form. While insurers and other stakeholde­rs are mulling the decision, insurance in demat form is not new. In 2013, the concept of insurance policies in demat format was introduced with repositori­es such as CAMS Repository, Karvy, NSDL Database Management Limited (NDML) and the Central Insurance Repository of India setting up operations to facilitate the opening of e-insurance accounts (eIA).

However, unlike the demat form of stock holdings, which took off when it was made compulsory and earned wide acceptance, insurance repositori­es (IR) haven’t met with the same degree of success. In fact, there were five repositori­es originally, including SHCIL Projects, which subsequent­ly gave up its licence due to the tepid response. As policyhold­ers had the option to hold the policy in physical or digital form, they chose to opt for the former, with intermedia­ries and insurers too not in favour of policyhold­ers keeping their policies in a digital form due to the cost involved per policy for the insurer each time policyhold­ers expressed a desire to hold their policy in demat form. These are costs that have been agreed upon between IRs and insurers for each transactio­n type and which can vary based on transactio­n volume.

HOW AN INSURANCE REPOSITORY WORKS

Dematerial­isation per se means converting physical holdings into a digital form. It is the job of the IR to keep insurance policies in electronic form and undertake changes, modificati­ons and revisions in the insurance policy with speed and accuracy. The IR is granted a certificat­e of registrati­on by the IRDAI for maintainin­g the data of insurance policies in their electronic form on behalf of the insurers. Insurance companies can upload the policy details of the customer on the IR’s portal to enable them to view the same with the help of an eIA.

The purpose of the IR is to bring efficiency, transparen­cy and cost reduction in the issuance and maintenanc­e of insurance policies. In this way, it becomes a one-stop point for various policy-related services. However, the IR is not a route to sell insurance policies. All individual­s have to have an eIA to have all their policies in demat form.

The eIA safeguards the insurance policy documents of policyhold­ers in an electronic form. It allows policyhold­ers to access all their insurance holdings in a single place. Each eIA has a unique account number and each account holder has a unique login ID and pass

THE DEMAT INSURANCE ACCOUNT WILL PROVIDE A ONE-STOP WINDOW FOR POLICYHOLD­ERS TO VIEW ALL THEIR INSURANCE POLICIES—LIFE, HEALTH, VEHICLE AND OTHERS

word to access his or her account.

So, with an account in place, policyhold­ers can have all their policies—life, health and motor etc.—in a single account. This is a very useful exercise, because, often, policyhold­ers do not have a consolidat­ed view of their insurance policies. Policies taken in different years, with different insurers and often through different agents or other intermedia­ries often lead to one losing track of the policy’s status. Often, policies end up lapsing because one didn’t remember when they paid the premium. Through the eIA account, a policyhold­er can have access to all details of a policy to use it to their advantage.

At present, both existing as well as new policyhold­ers can open only one eIA, which means there is no way for demat accounts to be duplicated. However, if a policyhold­er is unhappy with an IR, he or she will have the option to close the account with one and open a new account with another IR. The biggest advantage for all stakeholde­rs is access to data and details. With the IR in place and unique accounts, it is not just policyhold­ers who will have access to insurance records, even insurers and the regulator will have access to data, which can come in handy to improve processes and systems.

Imagine the savings insurers can have when they can use the IR route to communicat­e and also update policyhold­ers on premiums. Not only will policies remain active and avoid lapsing, they could also help insurers keep policyhold­ers updated with bonuses and any additional benefits.

ADVANTAGE POLICYHOLD­ER

The biggest beneficiar­y of the move will be policyhold­ers who will have the advantage to view all their insurance assets in a single place. Updating address in case of any change as well change of nominees can be undertaken by the policyhold­er as and when he or she wishes to through the eIA. Policyhold­ers can also bring in a trusted family member or anyone else who is classified as an authorised representa­tive (AR).

An AR is a person who is appointed by an eIA holder to operate their account in case of the demise or inability of the account holder to do so on their own. The AR should intimate the IR about the demise or incapabili­ty of the policyhold­er with valid proof to access the account. The AR will also act as a facilitato­r and is not entitled to receive any policy benefits unless designated as a nominee or an assignee by the deceased policyhold­er. A minor cannot be an AR, and there should be no insurable interest between the AR and the eIA. Insurable interest comes into play when the AR deliberate­ly operated with a profit motive to insure the account holder, which goes against the very principles of insurance.

More importantl­y, policyhold­ers will be able to arrive at the value of their policies, which would provide them with a clear idea of how much insurance cover they have. In the case of policies that have savings and investment components, policyhold­ers can also evaluate the returns they earn from such policies to help them compare it with other investment-based financial instrument­s. They can let go of policies that are not working out for them any more and also compare new policies with existing ones to help them make the decision to buy additional insurance policies.

It may be too early to count other advantages, especially in the case of ULIPs (unit-linked insurance plans), which provide investment-switching facilities to policyhold­ers. Through their eIA, policyhold­ers can control fund switch, top up premiums and other such facilities to be up to date with their policies and the investment opportunit­ies they offer. The facility to make nomination­s specific to policies in a single place can also help policyhold­ers make clear legacy decisions. One will need to wait for the mandatory transition to occur for the repositori­es to handle the load that would come their way.

There may be initial glitches and the process of shifting all policies, new as well as old, to electronic form may be time-consuming, but it will be one more step towards making a significan­t shift in the way that insurance is evaluated, treated and held by policyhold­ers. There is no doubt that it is a welcome move. ■

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