E-Insurance: Insurance in demat

In a move to lower the costs for insurance companies and bring transparency to policyholders, the Insurance Regulatory and Development Authority (IRDA) has issued guidelines for creating insurance repositories and electronic issuance of policies. It will help insurers to save costs on printing and dispatching policies. 

Policyholders will benefit from the ease of purchase, as identity and address proof need not be submitted every time a policy is purchased from the same or a different insurance company. It will also be easier to effect changes regarding address, nomination and so on. Provision of these services without extra cost for policyholders is certainly welcome, but will the insurer pass on the cost savings to customers by offering lower premiums? It is unlikely, because insurance companies will be paying the ‘insurance repositories’ for maintaining the data in an electronic format. The savings on dematerialisation of stocks has not been passed on to customers, i.e., shareholders; so why would it be any different this time?

In the guidelines, the regulator said that it will grant licences to and regulate ‘insurance repositories’ which will act as service providers to life insurance companies. The repositories will be connected to all insurance companies. The repository will give a unique number to every individual and all his policies will come under that account. It will hold all types of policies, including life, health, motor and group covers. The data maintained by the repository will include history of the claims of the individual. It will also have the names of the beneficiary, assignees and nominees.

There could be questions about the security of data with the insurance repository. IRDA wants the insurance repository to put in place measures to safeguard the privacy of the data maintained and adequate systems to prevent manipulation of records and transactions. A few insurance companies are not quite convinced about how the electronic dematerialisation process would work, and have concerns about data security. Moreover, there is no trading of insurance policies in demat form and, hence, this facility may be of limited use for the customer.