Digitising insurance policies is free for customers

If you are buying a life insurance policy, it is likely that along with the policy documents, the insurance company will ask for your consent to open an electronic insurance account.

It will give you a choice of five insurance repositories to choose from.

There is no extra charge for this and it will give you the benefit of a policy in electronic or demat form.

This will allow you to access information such as net asset value, bonus, claim, loan, nominee, premium payment status, premium calendar, annual statements, etc, on your laptop or even mobile (some IRs have launched mobile apps).

The Insurance Regulatory and Development Authority (Irda) is currently running a pilot project, until end-August, where all life insurance companies have to tie up with all five IRs and convert a minimum of five per cent of the existing life insurance policies into electronic form.

In addition, insurance companies have to issue five per cent of the new policies they sell during this period in electronic form.

Until now, it was not mandatory for insurance companies to tie up with all IRs. However, the pilot project is expected to address that issue.

Benefits of EIA

The biggest advantage is that policyholders do not have to pay any additional charges for the EIA.

The expenses of tying up with the IR and providing these facilities will be borne by the insurance company.

Once the policy is in electronic form, you don't have to worry about policy papers getting misplaced or lost.

You can use the EIA for viewing multiple policies, making online premium payments, updating any change in address, keeping track of complaints and grievances.

Other than digitising documents, IRs can also help insurance companies by taking on tasks such as call reminders for premium payment, data analytics, disaster recovery services and so on.

For companies in the long run, it will make it easier to contact customers (to follow up on premium payment) and this will in turn improve persistency, says an official from HDFC Life. The company has tied up with three IRs -- NSDL, CDSL and SHICL -- and is in the process of signing up with two more IRs.

Challenges for digitisation

The biggest challenge is the mindset because it is a new concept, says Viiveck Verma, executive director, Karvy Insurance Repository.

"Insurance companies may feel it is not worth investing the additional money to tie-up with IRs. Policyholders feel that even if they are not being charged now, they may be charged later on. But that is not the case.

"IRs get paid by insurance companies and insurance companies will see benefit in terms of lower cost of servicing," he says.

Karvy has so far tied up with 19 life insurance companies.

Five more are yet to tie up, and these include Life Insurance Corporation, the biggest in the segment.

Currently, policy administration charges are around Rs 150.

After digitisation, these charges will come down dramatically, which will get passed on to customers, says P Nandagopal, managing director and CEO, IndiaFirst Life Insurance, which is yet to tie up with all the five IRs.

"But the process is still cumbersome. Insurance products have massive paperwork compared to other financial paperwork.

"Unless the digitisation process is simplified, customers will not opt for it," says Nandagopal.

For now, companies are informing customers through call centres and through social media about the benefits of digitisation.

Common demat account: Is it feasible?

In the Union Budget, finance minister Arun Jaitley had spoken about a common digital account across financial products.

Given that equities and mutual funds are already available in demat form, insurance could be the next logical step.

Already, some brokerages such as ICICI Securities give their customers a consolidated view of the investments, provided it is purchased through the brokerage.

"So, at one glance, investors will get to know their holdings in mutual funds, equities, and insurance policies, maturity data, value, etc. Even if the customer has not purchased through I-Sec, they can still track by updating their portfolio," says Abhishake Mathur, head (investment advisory services).

However, that still leaves bank deposits, company fixed deposits, public provident fund, etc. How feasible is it before a common demat account across financial products is possible?

Verma of Karvy Insurance Repository feels it could take some time, because for a common demat account, coordination between regulators is essential.

"Today, even if you have more than one demat account or one bank account, a consolidated view is not available.

"For a common demat account across financial products, there are several issues to be sorted out."

Another issue could be the reluctance on the part of investors to disclose the details about one financial product to another service provider.

For instance, you may not want to disclose the details about your insurance policies to your stock broker.

Similarly, you may not want your insurance agent to know about your fixed deposits.

A practical problem is the valuation of various financial products.

"If the consolidated statement merely says I have 10 bonds, 20 shares, five insurance policies, it is not very useful.

"Ideally, a consolidated statement should tell me the value of my bonds, shares, fixed deposits and policies together.

"This will show me how much the net worth is," says a financial planner.

To give the actual valuation of the investment products is complex.

For instance, in some products, the valuation is calculated on a day-to-day basis.

But in the case of some others, only the historical value will be available.

For yet another lot, it may be the accrual value.

However, according to Abizer Diwanji, national leader (financial services) at EY, implementation is not a big issue since it is done internationally.

The bigger issue is getting people to actually change their investments into demat or digital form.

For this, regulatory changes may be required. "Unless people see some implication or consequence of not digitising, they will not be motivated to do it," he says.

For instance, policyholders may have to be told that they will not be allowed to encash their policies or will not get the tax exemption. "When demat of equity shares started, two deadlines were required.

Then stamp duty was increased for those holding physical shares.

A similar stricture may be required to encourage people to move to digitisation for insurance," he says.