Irdai wants insurance policies issued in demat format

Mumbai: The Insurance Regulatory and Development Authority of India (Irdai) is planning to ask life insurers to issue policies only in a dematerialized (demat) format beyond a specified threshold premium, four people aware of the development said. 

This rule will be made applicable to all insurance contracts, both for existing and new customers, these people said, including executives from insurance repositories, insurance companies and a regulatory official.

India’s insurance sector is the biggest in the world in terms of the number of policies—about 360 million are in force. This number is expected to increase 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.

Irdai has been trying to get insurance under the demat format since 2013 when it first licensed five companies to set up insurance repositories. 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 too.

So far, it hasn’t worked.

Per current norms, insurance contracts have to be compulsorily issued and maintained in electronic form in one of two ways: either through an insurance repository (which maintains insurance contracts in demat form) or emailed to policyholders with a digital signature along with physical copies. Insurers have overwhelmingly opted for the second route. 

A key hurdle to widespread use of demat formats has been resistance from state-owned Life Insurance Corp. of India (LIC), the country’s largest insurer, which also has the widest geographical spread and users in rural areas. 

“LIC has its concerns about the safety of data sharing and is yet to come up with a workable proposition,” said the head of a large repository on condition of anonymity. “If LIC stays away from demat, a large part of the insurance accounts will remain out of demat business.” 

An email sent to LIC did not elicit a response.

In 2016, SHCIL Projects Ltd, one of the five firms to be given a repository licence, exited the business citing non-viability under the current circumstances. National Insurance-policy Repository (run by NSDL Database Management Ltd), CDSL Insurance Repository Ltd, Karvy Insurance Repository Ltd and CAMS Repository Services Ltd are the remaining firms in the fray.

Over the past few weeks, insurance repositories have made several representations to Irdai and have held discussions with LIC and large private life insurers to convince them to use the repository route. “All private insurers have tied up with repositories. Irdai is aware of the changes required and seems to be attempting to resolve the issues,” said G.V. Nageswara Rao, managing director and chief executive officer of National Securities Depository Ltd, which owns NSDL Database Management Ltd. 

Irdai, too, has played its part. On 9 March, the insurance regulator made it mandatory for insurers to issue and maintain all insurance contracts in demat form if they are sold through any e-commerce platform or online marketplace.

However, less than 1% of policies are sold through e-commerce platforms and so far no demat account has been opened for any policy sold through an e-commerce platform, said Rao.

“Nothing much really is happening. Only a few policyholders in the industry have opted for the demat facility because it is just an option. For us, the percentage of such customers is in single digit,” said Amitabh Chaudhry, managing director and CEO, HDFC Standard Life Insurance Co. Ltd. 

“Once more customers avail of the demat facility and continue all future transactions in electronic form, the premium will start coming down. This will help policyholders, insurers and insurance repositories too,” he said.