As the motive of insurance is to cover financial loss due to the unfortunate occurrence of an insurable event, there is a limit to the insurance coverage one can choose.
For example, the motive of life insurance is to cover the loss of income due to the premature death of a breadwinner. Thus, the maximum amount of insurance cover that such a person can take out will depend on their level of income and the length of their remaining working life.
Similarly, the purpose of general insurance is to cover the expenses necessary to repair or replace insured property due to the occurrence of an insurable event.
So the motive of insurance is not to gain but to cover losses, there is a limit up to which a person can take insurance cover. In order to ensure that a person does not take out excess insurance cover, the applicant is required to disclose full details of insurance covers taken out with the same insurer or other insurers at the time of application. insurance – whether it is life insurance, health insurance or general insurance.
Many people skip these given rows or columns in application forms, thinking it is unnecessary or to save time and effort when filling out a form. Some people may even intentionally delete this information for illegal purposes.
However, the inclusion of insurance in the account aggregation system will make it difficult to hide or remove this information, as all insurance information will be available electronically in one place.
The Insurance Regulatory and Development Authority of India (IRDAI), in a circular issued to insurance companies on November 15, 2022, provides a guideline on how they can share insurance related data with account aggregators (AA).
As a result, account aggregators – essentially non-bank financial companies (NBFCs) that fetch financial information from various entities to provide all savings and investment data in one place – will be able to collect related information insurance and investment information.
“The Reserve Bank of India (RBI) has already instituted a framework of RBI-registered account aggregators, who are authorized to collect information on clients’ financial assets – like savings bank account details, bank deposits, mutual funds investment, insurance policies, pension funds, etc. – and the sharing of this financial information to end users – such as customers, lenders, including banks, NBFCs (to assess loan repayment capacity) as well as insurance companies (to assess the limit of sum insured and ability to pay premiums),” said Conjeevaram Baradhwaj, Executive Vice President (Legal & Compliance) & Company Secretary at Future Generali India Life Insurance Company Ltd.
The participation of insurers in the above process not only allows insurance companies to share financial information, but also to obtain information for financial underwriting. Information will be collected and shared electronically, to avoid unnecessary paperwork.
Entities sharing and receiving information will use APIs (Application Programming Interface) to integrate with the account aggregators system.
Since the sharing of customer financial information is based on prior customer consent and the information can only be shared with regulated entities. Additionally, IRDAI has advised insurers to ensure data protection when sharing information with account aggregators. These measures ensure that the interests of customers are protected.
“This is a welcome step in the right direction to support the insurance digitization project announced by IRDAI,” Baradhwaj said.