MC explains: Soon, you may have to hold your insurance policies in dematerialised form

The latest IRDAI proposal would ensure greater convenience for customers as all their policies would be held in a single repository. Customers would be able to buy insurance policies, pay renewal premiums, raise service requests and get claims settled with greater ease.

September 14, 2022 / 08:35 AM IST

Soon, you may have to compulsorily hold your insurance policies in electronic form just as you hold shares in a demat account.

The Insurance Regulatory and Development Authority of India (IRDAI) is mulling over a proposal to mandate the dematerialisation of insurance policies.

The facility was first introduced in 2013, with five insurance repositories – CAMS Repository, Karvy, SHCIL Projects, NSDL Database Management (NDML) and Central Insurance Repository of India – setting up shops to facilitate the opening of e-insurance accounts. Now, this number is down to four, with SHCIL having surrendered its repository licence.

Despite the numerous advantages for all stakeholders, the scheme met with a lacklustre response from policyholders and insurers due to a lack of demand and additional costs for insurance companies. Now, the insurance regulator’s latest move, if finalised, could revive the electronic policy framework.

“The IRDAI has invited the views of the industry on the dematerialisation of insurance policies but has not yet mandated this proposal. Getting customers to open e-insurance accounts will benefit all the stakeholders in the system, including the regulator,” says Vighnesh Shahane, MD and CEO, Ageas Federal Life Insurance.

As per reports, the rules will be effective from December 2022 for all new policies while the deadline could be December 2023 for existing policies.

Also read: The importance of having an e-insurance account in your financial portfolio

How does the dematerialisation process work?

Simply put, the process involves converting your existing physical insurance policies into electronic form or buying these policies directly in digital form. This is much like the dematerialisation of equity shares.

Today, 99.9 percent of equity transactions take place in the demat mode, as per the Securities and Exchange Board of India (SEBI). However, the digitisation of insurance policies did not meet with similar success. Unlike equities, policyholders cannot transact on a regular basis via e-insurance accounts, which is also one of the reasons for the lack of demand.

With the rapid increase in digital adoption in the financial services space, especially post Covid-19, the results of a demat push this time round are likely to be different. Your electronic insurance policies will be held in a demat account termed e-Insurance Account, or eIA.

At present, policyholders do not have to pay any charges for opening eIAs, as the cost (Rs 35-50 per policy) is borne by the insurance company.

“The account opening process is rather simple and quite well aligned with the customer journey for buying an insurance policy. Customer simply indicates the choice of insurance repository while buying the policy (they can do later as well) and insurer opens the eIA instantly on behalf of the customer,” says Vijay Gupta, Senior Vice President, NDML. Do note that this facility is available even now, but is optional.

How can I open an eIA?

You can open an eIA at the time of buying a fresh policy, which will then be credited to your account. You can also convert your existing, physical insurance policies into electronic forms. “EIA comes into the picture once you have decided to buy a particular policy. You can get it in electronic format through eIA,” he adds.

For policyholders, the process of opening and maintaining the account as also converting physical policies into demat form is fairly simple. “IRDAI has already created an industry service i-Trex, which ensures that there is no duplication of eIA across insurance repositories. Once the policyholder has an insurance account, they can add all their policies into it and their repository will contact insurers and get them digitised,” says Vivek Bengani, CEO, CAMS Rep.

To be sure, you would be allowed to open only one eIA, unlike multiple demat accounts that you can have.

Also read: Policyholders set to benefit as IRDAI proposes new commission ceilings 

Why should I switch to eIA?

If the current system of physical insurance policies has worked well so far, is there a pressing reason why policyholders should switch to demat? For one, if IRDAI’s proposal goes through, you may not have a choice eventually. However, even if it is not mandatory, this mode offers several benefits.

“The sophisticated portal proposed by IRDAI would ensure greater convenience for customers as all their insurance policies would be held in a single repository. Customers would be able to buy insurance policies, pay renewal premiums, raise service requests and get claims settled with greater ease,” says Shahane. “For insurers, it would allow improved ease of business while for the regulator, it would give a real-time dashboard and insights.”

While most insurance companies issue timely renewal reminders via email or text messages, there is a chance that some may not. If you store all your policies in eIA, there is little scope for missing out on those reminders (you will get alerts from eIAs).

More importantly, if you wish to update your bank account, address or contact details across policies, you only need to make the changes in your eIA. “The same automatically gets reflected in all policies from different insurers,” says Vivek Bengani, CEO, CAMS Rep.

How does an eIA make KYC easy?

E-insurance accounts will do away with the need to go through the KYC process repeatedly when you buy policies from different insurers. “It can also be used as a store of KYC so that repeat KYC can be avoided. You don’t need to log in to different websites to see your policies. The use cases can be many and this is just a start. Importantly, all of this comes without any cost to the policyholder,” explains Gupta.

How can my family members benefit from eIA?

Since an eIA is a consolidated repository of all policies across insurers, this ensures your family members get access to all the benefits in your absence. “There are umpteen number of instances where family members are not aware of all the policies and do not get benefits of risk cover after the demise of the life assured,” says Bengani.

Also, when you merely have an online copy in your mailbox, you or your family will still have to preserve the physical document and produce it while claiming benefits. An e-insurance account will do away with this hurdle. “Also, every e-insurance account comes with (the facility to appoint) authorised representatives who can help family members access the policy benefits in the absence of the policyholder,” he says.

What are the limitations of this system?

The added cost of facilitating eIA opening could be a dampener from insurers’ perspective. It remains to be seen how they respond to the proposal to mandate digitised insurance accounts.

Also, 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. “Data standards for more services are getting defined and these functionalities, including fund switch and unit-linked insurance policies (ULIP) NAVs, are getting ready and will be available soon,” says Bengani.
Preeti Kulkarni is a financial journalist with over 13 years of experience. Based in Mumbai, she covers the personal finance beat for Moneycontrol. She focusses primarily on insurance, banking, taxation and financial planning
first published: Sep 14, 2022 08:35 am