Insurance policies

Everything you need to know about the dematerialization of insurance contracts

Why is there so much excitement among insurance companies these days?

Well, that’s because insurance regulator IRDAI is now giving a big boost to the “dematerialization” of policies. As part of this exercise, the regulator has mandated from December this year, all new insurance policies will have to be issued in a dematerialized form. By December 2023, all old or existing fonts must be ported to the demat platform. Plus, with eKYC becoming mandatory from November 1, paperless is exactly what the doctor ordered for the insurance industry.

What exactly is the dematerialization of insurance?

Going paperless will eliminate paperwork and physical fonts. This will involve converting physical fonts into editable digital documents. Each time a new insurance policy is issued, it will be in demat format. The policy document and its details will be taken digitally on a platform. Simply put, policies will not be issued in paper form, but in digital form, and will be held in a customer’s Electronic Insurance Account (eIA). eIA is an applicant’s/policyholder’s portfolio of insurance policies held in electronic form with an insurance repository.

Who will benefit from the dematerialization of insurance?

Insurers, insurance repositories and policyholders should benefit. The insurance sector will be the long-term beneficiary. However, the immediate beneficiaries would be depositories such as NSDL, CDSL, CAMS and Karvy who will enable this movement.

How will an insured benefit from dematerialization?

The electronic insurance account will help policyholders access their insurance portfolio with one click. The eIA holder can track insurance policies (life, non-life, including health) on one platform. Serving policies will be easier and policyholders will be able to borrow against policies held electronically, much like pledging shares.

How will insurers benefit from dematerialization?

Insurers will save significantly on costs, especially on policy printing and delivery. In 2021-2022, the life insurance industry sold three crore policies digitally, contributing to better risk management. Nearly 50 million non-life policies have been sold – imagine the savings on paper if they were all to be dematerialized. There are about 30 crores of active life insurance policies and these could eventually be converted into electronic form.

How does the IRDAI regulator encourage dematerialization?

The regulator on a single dashboard can supervise all the activities of the sector. This would lead to better tracking and regulatory oversight of the industry. This is significant given the scale of operations in the life insurance industry, which is likely to touch $100 billion in premium revenue.

How do insurance companies appropriate the IRDAI mandate on dematerialization??

As the regulator has mandated dematerialization, it should move forward at full speed. But the pace will largely depend on how insurance giant LIC pushes for it. With a market share of over 60%, any decision by LIC to take this seriously will give a boost to this exercise. Media reports suggest that the LIC is considering setting up its own custodian.

Will policyholders be required to pay for opening the eIA or for operating such accounts?

No, online insurance accounts are free to claimants. No fees are charged to the individual for opening, maintaining or modifying the details of the eIA. Insurance repositories would most likely be paid by insurance companies to maintain policy data in electronic form.

Published on

September 19, 2022