The Insurance Regulatory and Development Authority of India (IRDAI) plans to lobby the government to allow use of Aadhaar to make online know-your-customer (KYC) process simple and quick for insurers and policyholders, said IRDAI chairman Subhash Chandra Khuntia on the sidelines of Mint Insurance Conclave in Mumbai.
"KYC is one area we are taking up with the government, to use Aadhaar as a kind of KYC for the insurance sector," said Khuntia. "The insurance companies and the insurtech companies need to use simple KYC so they do not spend too much time. Customers also do not have to wait for too long before they get the product. This is something which will help in doing that," he said.
Presently, all private companies, including insurers, are barred by the Supreme Court from seeking a person's Aadhaar number to complete the e-KYC process. The apex court judgement, which came last year, had hit banks and online payment platforms which were using the Aadhaar number as a single step, low-cost model for furnishing KYC details of their customers.
Along with steps to ease the KYC process, Khuntia also urged insurers to collectively focus on loss reduction by use of technology for data collection and better risk underwriting. "That way, the premium for policyholders can also go down and we will live in a better society," he said.
But the process of gathering details of customer behaviour for better underwriting, he said, should not happen on an individual basis. The insurance regulator discourages companies from having differential pricing for health and life insurance products based on each individual's data, as this goes against the idea of risk pooling in insurance, which allows risk to be spread across a group of people to insure those who suffer loss, damage, illness, or death.
"If the information about every individual is known completely from all aspects, then finally it will not be resulting in any insurance because the risk of each individual will be known. Then the individual with the highest risk will have to pay high premium and insurance will become unaffordable to that individual," he said. The segregation of policyholders on these basis should stop at some point, otherwise the purpose of insurance will be lost, he said.
IRDAI also plans to implement risk-based supervision for insurers which means that insurers with lower risk will be regulated less. "We would like to intensify supervision where the risk is more and reduce it where the risk is low," he said. The insurance regulator also plans to implement risk based capital regime, which would allow insurers to maintain solvency capital relative to their risks. Presently, all insurers are required to maintain a compulsory solvency margin of 1.5 times their liabilities.
In the aftermath of cyclone Fani, which claimed 34 lives and damaged 5 lakh houses, the regulator asked companies to brace for insuring climate change. Besides that, insurers need to adapt quickly to changes and develop new processes for assessing emerging risks such as cyber-security, liability and driverless cars, he said.