In September this year, the Insurance Regulatory and similar to Development Authority (IRDA), the insurance industry regulator flagged off the long-pending move to allow investors hold insurance policies in the electronic or dematerialized form similar to stocks and bonds. The difference is that for stocks it is mandatory, and voluntary, at present for insurance. This dematerialization of insurance will be done through what is called the insurance repository system. There are designated companies companies (NSDL Database Management, Central Insurance Repository, CAMS Repository Services, SHCIL Projects and Karvy Insurance Repository) that would act as repositories, and investors can open an electronic insurance account with such, where all their policies from any insurer can be held. Currently this facility is available only for life insurance policies, but soon is likely to be extended to general insurance as well. The most apparent benefit for investors from this move is the freedom from paper work and preservation of certificates in the physical form.
“The moment of truth in the insurance business is the death, or maturity benefit pay-off. In a large number of cases the nominees are not aware of all the insurance investments. Every insurance company has crores of rupees lying as unclaimed maturity amount. The electronic account would allow the nominee access, and would centralize all holdings,” explains Vikas Gujral, head, customer service and operations at Max Life Insurance. Insurance repositories would capture know your customer (KYC) data, convert the policies into electronic mode, protect them and take care of the ongoing servicing needs of policyholders. They do this by opening an e-Insurance Account and tagging the insurance policies into this account.
Opening an e-Insurance account is free of cost. It is easy to operate, highly secure and always available online. It saves you the hassle of filling multiple KYC forms when you apply for policies across life, non-life, health and pension products. Policy holders can also appoint authorized representatives (like power of attorney holders) in case they don’t want to disclose the policy details to their nominees.
Repository company will act as the single point of contact for most of the basic insurance related service requirements such as change of address or nominees. Insurance companies say that is help such processes become faster and smoother for investors. Also, the proliferation of e-insurance accounts could check instances of misselling because the agent will not be able to keep the new insurance policy till the expiry of the 15-day free-look period. With a young population that extremely mobile in terms of moving cities, the electronic account reduces dependence on agents.
With repositories handling much of the back-end work, insurers are expected to save some administrative, policy creation, issuance and customer support costs. “If this goes the way how mutual fund companies have outsourced their back end work, it would free up our energies and enable us to focus better on marketing and product development,” says Gujral.
For the $66 billion Indian insurance industry, the repository system could prove to be a game changer. Most companies say this would improve the profile of investors. According to Gujral, research shows that people buy at least 10 insurance policies over the course of a lifetime. Companies expect technology savvy young customers to quickly adopt the dematerialization of insurance. Companies hope that electronic accounts will help increase timely premium payments.
“With the coming of repositories, we can focus more on market penetration which remains pretty low in India. Progressively, branding, marketing and product innovation will become the key determinants of success,” adds Gujral.