Irda may usher in life insurance portability
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Mumbai: The insurance regulator is considering allowing life insurance policy holders to switch from one insurer to another without surrendering their existing policies and thus losing a portion of the premium paid.
Discussions to allow portability in life insurance are in early stages and it is likely to happen after the industry moves to a completely digital form of transacting and managing insurance products, said three people, including a regulatory official, on condition of anonymity as the discussions are yet to be formalized.
By allowing portability, the Insurance Regulatory and Development Authority of India (Irda) aims to save customers the cost of surrenders while changing policies if they are unsatisfied with their existing insurer. The regulator had already allowed portability in health insurance policies in 2011.
Portability can make life easier for policy holders in terms of services and cost, said one of the three people cited earlier.
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.
The portability plan is also in line with the government and Irda’s aim to curb misselling of insurance in the country, the person said.
Under current rules, such a transfer is not allowed. If a policy holder wishes to discontinue her existing 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, standardization of prices, mortality and morbidity rates used by different insurers and mandatory electronic issuance. On 28 March, Mint reported that Irda 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 as well.
“Trust is the main factor in the insurance industry and portability can improve 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.
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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, added the second person.
Portability “may be possible only for certain specific products which may have similar structures and charges”, said Amitabh Chaudhry, managing director and CEO of HDFC Standard Life Insurance Co. Ltd, which is in the process of acquiring Max Life Insurance. “Portability will require considerable changes in the underwriting policies and the rates for several products may have to be standardized.”