Cost hurdles delay expansion of e-insurance

Benefits include holding all policies under a single e-insurance account

Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

“Insurance repositories have so far opened around 65,000 e-insurance accounts for policyholders, but have been able to digitize only about 10,000 policies. That’s because out of a total of 24 insurance companies, only 10 have tied-up with insurance repositories,” said S. V. Ramanan, chief executive officer, CAMS Repository Services Ltd. And out of the 10, only about five have tied up with all the five insurance repositories namely NSDL Database Management Ltd, Central Insurance Repository Ltd, SHCIL Projects Ltd, Karvy Insurance Repository Ltd and CAMS Repository.

Given the lukewarm response, Insurance Regulatory and Development Authority (Irda) had a meeting with insurance repositories and life insurance companies on 18 March in which it suggested a roadmap to make it mandatory for insurance companies to offer a demat option to the policyholders.

“The roadmap suggests that from July, insurers will have to offer a demat option for all the fresh insurance policies with an annual premium of at least Rs.25,000 and a minimum policy term of 10 years. And from October, all life insurance policies will have to offer a demat option,” said Ramanan.

Irda hasn’t yet issued a circular to insurers to make the timeline official. However, an Irda official, who didn’t want to be named, told Mint that the regulator has, in fact, constituted two working groups to review the roadmap.

Why the tepid response?

Insurers are reluctant to tie up with repositories mainly because of the cost involved. For customers, opening an e-insurance account and subsequently holding insurance in demat form is free of cost. Insurers, however, will have to bear the cost. Further, for existing policies that will get digitized, the insurers would have to bear the additional expense as they would have paid the policy issuance costs already.

“For future policies, demat will obviously reduce costs. But initially, the insurers will have to bear the cost, which is a cause for concern for them. For instance, Life Insurance Corporation of India (LIC) has around 300 million policies. With the cost of digitizing one policy being around Rs.60, LIC will have to shell out around Rs.1,800 crore for this,” said the Irda official quoted earlier.

At present, it costs the insurer around Rs.600 to issue a physical policy; this will come down to Rs.60-75 once the policies get issued digitally. However, insurance companies are reluctant given the initial costs involved.

“We have tied up with some of the insurance repositories. Digitizing policies is certainly good for the customers and it’s important to make it mandatory, but one needs to be mindful of the expenses. It would be better if a transition period is allowed and the costs are shared by the customer, at least initially, especially for those existing policies where the insurer has already incurred the expenses,” said Amitabh Chaudhry, chief executive officer and managing director, HDFC Standard Life Insurance Co. Ltd.

Why demat helps

Holding your insurance policy in demat form has many benefits. Not only is there no risk of losing physical documents; you can hold all your policies in one place under one e-insurance account.

For now, the demat facility is applicable to life insurance policies and in due course, will be extended to non-life policies as well.

Having an e-insurance account also takes care of your know-your-customer (KYC) requirements as well. This means that the next time you buy an insurance policy, you needn’t go through the KYC process again; the insurer can get the details from the repository you hold an account with.

Plus, it’s easier to effect changes. For example, if you want to change your address, all you need to do is change it in your e-insurance account and the repository will update it for all your policies.

To store all your policies online, you will have to create an e-insurance account with a repository either directly or through an insurer. Once you have an online account, you will have an account number, username and password.

“New policyholders will have to give their e-insurance account number at the time of buying a policy and the policy will be digitized from day one. Existing policyholders will need to give a request,” said Viiveck Verma, executive director, Karvy Insurance Repository.

Digitizing your policy is a step in the right direction and the fact that Irda is pushing insurance companies to tie up with repositories to offer the demat facility is a positive move. Even the repositories are hopeful.

“With this roadmap, we are very hopeful of more insurer tie-ups in the coming months. Insurers would have been busy with the March year-end closing, but now they will be able to focus on this. Customer experience is also something that will drive-up demand,” said Verma.

Whether the regulatory authority makes the timeline official and how insurance companies resolve the issue of costs, we will know only in due time. But there is no doubt about the fact that digitization of insurance policies is here to stay.

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