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Dematerialisation of Insurance Policies

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October 06, 2022

Why in news?

The Insurance Regulatory Development Authority of India (IRDAI) has mandated dematerialisation of new insurance policies by December 2022.

What is IRDAI circular about?

  • By December 2022, all the new insurance policies will have to be compulsorily issued in a dematerialised form. 
  • By December 2023, all the old or existing policies will have to be brought on demat platform.
  • From November 2022, the eKYC is becoming mandatory.
  • The insurance company will pay for all the costs associated with the conversion in the online form and policyholders will not have to pay any fees for the e-insurance policy.

What is insurance dematerialisation?

99.9% of equity transactions take place in the demat mode, as per the Securities and Exchange Board of India (SEBI).

  • Dematerialisation entails the conversion of physical policies into modifiable digital documents.
  • The policies will be issued digitally and will be kept in an e-insurance account (eIA) of the customer.
  • The regulator is keen on developing a digital platform called “Bima Sugam” for selling, servicing, and settling claims.
  • Insurance policies could be dematerialised with insurance repositories that maintain the data of insurance policies in electronic form on behalf of insurers.
  • Currently, there are four insurance repositories.
    • NSDL National Insurance Repository
    • CDSL Insurance Repository
    • Karvy Insurance Repository
    • CAMS Insurance Repository Services

e-insurance account (eIA) is the portfolio of insurance policies of a proposer/policyholder held in an electronic form with an insurance repository.

What is the need for such a move?

  • The main objective of the move is to promote ease of doing business for insurers and ease of access and services for policyholders.
  • The regulator is promoting dematerialisation to ensure robust electronic mode of policy solicitation, servicing, and storage.
  • The regulator on a single dashboard can oversee the entire sector’s activities leading to better monitoring and regulatory oversight of the industry.
  • This is important for life insurance industry, which is likely to touch 100 billion dollars in premium receipts.

What are the benefits from dematerialisation?

  • Benefits for policyholders- The eIA holder can keep track of insurance policies (life, non-life, including health) under one platform.
  • Servicing of policies will be easier.
  • Policyholders can borrow against the policies held in electronic form just like pledging of shares.
  • Benefits for insurers- Insurers will save considerably on costs, especially on printing and delivering of policies.
  • Others- Holding an e-insurance policy would not only be convenient but also eco-friendly and at the same time reduce frauds.

What are the limitations of this system?

  • Cost- The added cost of facilitating eIA opening could be a problem from insurers’ perspective.
  • More Services- For the electronic insurance account to carry utility value as high as what demat share accounts do, more services would need to be offered.
  • At present, eIAs do not offer the full range of services that policyholders can utilise.

 

References

  1. https://www.thehindubusinessline.com/blexplainer/bl-explainer-all-about-dematerialisation-of-insurance-policies/article65909354.ece
  2. https://www.moneycontrol.com/news/business/personal-finance/mc-explains-soon-you-may-have-to-hold-your-insurance-policies-in-dematerialised-form-9174281.html
  3. https://www.financialexpress.com/money/insurance/your-money-benefits-of-demat-insurance-policies/2671930/
  4. https://www.financialexpress.com/money/insurance/what-is-bima-sugam-and-who-will-benefit-from-it/2701227/

 

Quick facts

Bima Sugam

  • Bima Sugam will be a one-stop platform for all insurance needs, right from buying the policy to claim settlement and much more.
  • Under Bima Sugam, there will be E-BIMA or E-IA account for policyholders in a Demat format.
  • It shall allow the following insurance services:
    • Buy insurance policy
    • Claim Settlement
    • Agent Portability
    • Policy Portability
  • It will be accessible by insurers, agents, intermediaries and customers.
  • Bima Sugam shall have linkages with UIDAI, NSDL, CDSL, etc.

Insurance Regulatory and Development Authority of India (IRDAI)

  • IRDAI is an autonomous and statutory body responsible for managing and regulating insurance and re-insurance industry in India.
  • It is a 10-member body (a chairman, five full-time members and four part-time members) appointed by the Government of India.
  • It was constituted under IRDAI Act, 1999.
  • The agency’s headquarters is in Hyderabad.
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