Dematerialisation of Insurance Policies

Why in news?

The Insurance Regulatory Development Authority of India (IRDAI) has mandated dematerialisation of new insurance policies by December 2022.

What is IRDAI circular about?

• By December 2022, all the new insurance policies will have to be compulsorily issued in a dematerialised form. 
• By December 2023, all the old or existing policies will have to be brought on demat platform.
• From November 2022, the eKYC is becoming mandatory.
• The insurance company will pay for all the costs associated with the conversion in the online form and policyholders will not have to pay any fees for the e-insurance policy.

What is insurance dematerialisation?

99.9% of equity transactions take place in the demat mode, as per the Securities and Exchange Board of India (SEBI).

• Dematerialisation entails the conversion of physical policies into modifiable digital documents.
• The policies will be issued digitally and will be kept in an e-insurance account (eIA) of the customer.
• The regulator is keen on developing a digital platform called “Bima Sugam” for selling, servicing, and settling claims.
• Insurance policies could be dematerialised with insurance repositories that maintain the data of insurance policies in electronic form on behalf of insurers.
• Currently, there are four insurance repositories.
  • NSDL National Insurance Repository
  • CDSL Insurance Repository
  • Karvy Insurance Repository
  • CAMS Insurance Repository Services

e-insurance account (eIA) is the portfolio of insurance policies of a proposer/policyholder held in an electronic form with an insurance repository.

What is the need for such a move?

• The main objective of the move is to promote ease of doing business for insurers and ease of access and services for policyholders.
• The regulator is promoting dematerialisation to ensure robust electronic mode of policy solicitation, servicing, and storage.
• The regulator on a single dashboard can oversee the entire sector’s activities leading to better monitoring and regulatory oversight of the industry.
• This is important for life insurance industry, which is likely to touch 100 billion dollars in premium receipts.

What are the benefits from dematerialisation?

• Benefits for policyholders- The eIA holder can keep track of insurance policies (life, non-life, including health) under one platform.
• Servicing of policies will be easier.
• Policyholders can borrow against the policies held in electronic form just like pledging of shares.
• Benefits for insurers- Insurers will save considerably on costs, especially on printing and delivering of policies.
• Others- Holding an e-insurance policy would not only be convenient but also eco-friendly and at the same time reduce frauds.

What are the limitations of this system?

• Cost- The added cost of facilitating eIA opening could be a problem from insurers’ perspective.
• More Services- For the electronic insurance account to carry utility value as high as what demat share accounts do, more services would need to be offered.
• At present, eIAs do not offer the full range of services that policyholders can utilise.

References

1. https://www.thehindubusinessline.com/blexplainer/bl-explainer-all-about-dematerialisation-of-insurance-policies/article65909354.ece
2. https://www.moneycontrol.com/news/business/personal-finance/mc-explains-soon-you-may-have-to-hold-your-insurance-policies-in-dematerialised-form-9174281.html
3. https://www.financialexpress.com/money/insurance/your-money-benefits-of-demat-insurance-policies/2671930/
4. https://www.financialexpress.com/money/insurance/what-is-bima-sugam-and-who-will-benefit-from-it/2701227/

Quick facts

Bima Sugam

• Bima Sugam will be a one-stop platform for all insurance needs, right from buying the policy to claim settlement and much more.
• Under Bima Sugam, there will be E-BIMA or E-IA account for policyholders in a Demat format.
• It shall allow the following insurance services:
  • Buy insurance policy
  • Claim Settlement
  • Agent Portability
  • Policy Portability
• It will be accessible by insurers, agents, intermediaries and customers.
• Bima Sugam shall have linkages with UIDAI, NSDL, CDSL, etc.

Insurance Regulatory and Development Authority of India (IRDAI)

• IRDAI is an autonomous and statutory body responsible for managing and regulating insurance and re-insurance industry in India.
• It is a 10-member body (a chairman, five full-time members and four part-time members) appointed by the Government of India.
• It was constituted under IRDAI Act, 1999.
• The agency’s headquarters is in Hyderabad.