What’s In Store For Stakeholders As IRDAI Aims To Mandate ‘Demat’ Of Insurance Policies
For the older and existing policies, the proposed timeline suggested by the regulator is December 2023.
Come December, insurance policyholders need not rummage through inboxes or files and folders for their policy documents. Instead, they can find all of them stored in an electronic format with a repository.
The Insurance Regulatory and Development Authority of India is looking to mandate dematerialisation of all new policies issued from December this year. This was optional earlier. For the older and existing policies, the proposed timeline suggested by the regulator is December 2023.
Dematerialisation means transforming physical documents into a modifiable digital format. The move is aimed at reducing frauds and risk of over-insuring customers due to improved transparency by providing better visibility to all insurers, as all policy details would be available in a single repository.
The move--combined with e-KYC--will also enable the industry to do away with paperwork and provide ease of management for customers with multiple policies.
The regulator would also have access to a real-time dashboard and insights with regards to insurance penetration. It is expected that customers, pay renewals, raise service requests and get claims settled with greater ease, according to Vighnesh Shahane, managing director and chief executive officer at Ageas Federal Life Insurance.
For this, a special account called e-insurance account, similar to a demat account for shares, will be opened for insurance policies. The EIA once opened will help create a portfolio of all insurance policies—life and general like health, motor, travel, among others, held by a person in one place.
Currently, there are four insurance repositories—NSDL National Insurance Repository, CDSL Insurance Repository, Karvy Insurance Repository, and CAMS Insurance Repository Services. The customers have an opportunity to choose their repository.
What’s In Store For Policyholders?
The e-conversion of the policies would be done by the insurance companies on behalf of the customers.
All costs with regards to opening the accounts, e-conversion, and annual maintenance charges for holding and maintaining the account would be borne by the insurers.
Every individual would have only one account in their own name, with option to link it to their existing demat account.
They would be able to view all their policies in a single statement enabling them to keep track of their policies.
This would do away with the need of maintaining paper documents, thus reducing hassle related to misplacing and forgetting about policies in the event of any unforeseen event where the next of kin are required to deal with the documents.
It would help customers pay renewals, raise service requests, and get claims settled all from one portal; as well as lead to streamlining of claims.
Once e-KYC is done with any insurer, it will be easier to obtain other policies without having to go through the whole process again. It will also enable quicker verification of policy documents.
It would also be easier to obtain loans against insurance policies.
While the insurers will be bearing all costs, it is to be seen whether insurance premiums of newer policies will be hiked to cover these costs or any extra processing charges would be levied by the industry.
Existing policies, however, would see no change in pricing.
What’s In Store For Insurers?
The insurance industry termed the move as positive citing improved transparency and efficiency, and reduced frauds, but it is also expected to increase operational costs.
“There are certain operational challenges and cost concerns that need to be worked out before this proposal is implemented,” said Shahane of Ageas Federal Life Insurance.
Elaborating on the costs, Shahane told BQ Prime, that there are four types of costs involved.
One-time cost of opening an EIA with the repository for first-time customers which currently ranges from Rs 35-60 depending on the repository.
Repository charges for existing policyholders with EIA account with another insurer issuing a different policy from other insurer in the range of Rs 35-60.
Conversion cost into electronic version for existing policies at Rs 35-50.
Annual maintenance charges of Rs 25-50 each year towards each policy.
While some of these costs are expected to be offset against printing and couriering costs incurred by insurers for new policies, these will take time to phase out, Shahane said, as some customers currently prefer a physical copy to go with the online version.
Considering the above costs, the insurer would be spending Rs 25-60 while issuing a new policy and for conversion of existing policies as an upfront cost, while the AMC would have to be paid regularly. Insurers, according to Shahane, are looking at an outright charge in the range of Rs 60-100 per policy.
For large companies like Life Insurance Corp. that have multitudinous existing policies, this might prove to be a monumental task and a huge one-time expense in CY23 to convert all policies to the electronic format.
New Windfall Revenue Stream?
Vijay Gupta, vice president at NSDL Database Management Ltd., told BQ Prime that the insurance repositories are compensated by the insurance companies for safekeeping of policy data in electronic form and providing services to their customers.
The charges, Gupta said, are rather nominal, and depend upon the agreement with the insurance company. He also expects that once EIA is made mandatory, increased volumes may result in further lowering of per account and per policy AMC charges for the insurers.
“While the EIA expansion is expected to bring significant expansion of scope and services and hopefully some additional profit and revenue to the repositories but it may not really be an astronomical increase.”