Digitization of insurance documents will help check fraud
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In September, Insurance Regulatory and Development Authority (Irda) launched the insurance repository system (IRS). With this, policyholders can now store insurance policies electronically under a single electronic insurance account or e-insurance account. So far there are five insurance repositories that will open e-insurance accounts for policyholders, demat policies and also maintain data of policies electronically for insurers. S.V. Ramanan, chief executive officer, CAMS Repository Services Ltd, an insurance repository, talks to Mint Money on the progress it has made and on the benefits IRS will bring to customers and the industry.
You need to tie up with insurers in order to help their policyholders digitize insurance policies. So how many life insurance companies have you tied up with so far?
For the repository business, we have tied up with five life insurance companies so far. They are ICICI Prudential Life Insurance Co. Ltd, Reliance Life Insurance Co. Ltd, PNB MetLife Insurance India Co. Ltd, Kotak Mahindra Old Mutual Life Insurance Ltd and IndiaFirst Life Insurance Co. Ltd. But we have been doing outsourcing business, such as processing new business application, persistency management and managing policyholders through our centres spread across the country, for insurers since the last few years. In this space we work for 12 life insurance companies and two non-life insurance companies.
IRS was launched in September. By now how many customers have come to open their e-insurance accounts? Who are these customers?
We have opened 2,000-plus accounts so far. On the day of the launch on 16 September, we did a simultaneous launch in about 172 centres of ours across the country. Volumes will pick up as we have now started promotions in these locations. We have trained manpower in these locations so that when customers walk into these locations, people are able to explain the concept. It’s basically the walk-in customer base that we are tapping; we are not calling anybody.
Insurance repositories will need to tie-up with all life insurance companies. A customer who opens an account with you should be able to digitize a policy from any insurer.
When the guidelines were issued two years ago, the expectation was that all insurers will have to offer this service and tie up with all insurance repositories. Then Irda made a change allowing insurers the choice of participating in IRS and also choosing the insurance repository they would want to tie-up with. But when the initiative was launched by the finance minister, he asked Irda to issue timelines by when all insurance policies will be in electronic format. So that will again bring us back to the original guidelines as it will be the requirement of the day. I am looking at two-three years before this will become mandatory.
There are some obvious benefits of digitizing paper documents like a life insurance policy, but according to you what will be the biggest benefit to customers?
Couple of things are happening in the country: Aadhaar is going to help in financial inclusion because that will be a valid KYC (know-your-customer) document. Irda also recognizes Aadhaar e-KYC to be a valid KYC document to open an e-insurance account. So once a customer has already done her KYC with us, she doesn’t need to do it again every time she buys insurance. That’s the biggest advantage that I see right now. Even with the same insurer if you buy a new plan you need to furnish all your KYC documents. IRS will eliminate this. Customers can also make policy request under one account instead of having multiple accounts with individual insurers. Think of an insurance repository as an electronic insurance wallet in which all your policies starting from life to non-life can be held in electronic format.
Digitization will also help check fraud. In insurance, the bank mandate is collected at the time a policyholder makes a request for, say, surrender or partial withdrawal. In mutual funds, bank mandate is collected upfront. Asking for a bank mandate later on at the time of request is a risky proposition because if there is a fraud then you are paying to the account that the fraudster has given you at that point in time.
But now as a part of the e-insurance account, customers will have a registered bank mandate upfront and over a period of time the regulator wants only electronic payouts to happen. This will ensure the volume of unclaimed amount comes down. Change in address is a big problem. In such cases insurers end up holding the warrants with them till they are able to reach the right customer. Digitization will take care of that.
What about the insurers? How will they benefit?
Suppose a customer changes address, she will need to submit KYC documents with all the insurance companies to effect that change. But with an insurance repository, she could do it just once and the repository would communicate to all insurers concerned.
The advantage that I see for the industry at large is that they don’t have to have servicing operations across the country. They can segregate their sales and service operations so that the servicing can be left to the insurance repository and sales, underwriting and other things can be taken care of by insurance companies. In fact, insurers should make use of neutral entities such as us in servicing policies.
We have made welcome calls on behalf of insurers and in one case we had a customer telling us that at the time of the policy the agent promised that his kid’s education will be borne by the agent till 12th standard if he took the policy. The sales guy and the service guy are sitting in the same branch and the service guy is supposed to validate whether the sales guy hasn’t given any false promises and this service guy also reports to the branch manager whose target of sales will not be met if they are very stringent. Ideally these services should be left to entities that are completely neutral.
But how will insurers benefit in terms of costs?
Insurers will save significantly and out of that a fraction will be paid to the insurance repository. The cost for the insurer for issuing an insurance policy and subsequent annual maintenance is about Rs.600. That will come down in the range of Rs.80-100. Subsequently, they will also save when we service the policyholders for them.
For customers, e-insurance account is free but we can charge the insurer. Irda suggested we work out a cost plus model instead of going for a percentage of savings model. Ideally we would have liked to price 50% of the savings but Irda has advised against that model. Irda wants us to work on what our cost will be and the percentage margin and charge that amount. This will be viable in the long run. We charge in the range of Rs.80-100 per policy credit or digitization, around the same as annual maintenance fee per account and Rs.30 for policy service request.
By when do you plan to start dematerializing non-life companies?
Discussions with non-life insurers have been initiated by General Insurance Council. We should be ready by December-end and launch by January.