All about dematerialisation of insurance policies

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

Well, it is because the insurance regulator IRDAI is now giving a big push to “dematerialisation” of policies. As part of this exercise, the regulator has mandated from December this year, 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. Also, with eKYC becoming mandatory from November 1, the dematerialisation is just what the doctor ordered for the insurance industry.

What exactly is insurance dematerialisation?

Dematerialisation will remove the paper work and physical policies. It will entail conversion of physical policies into modifiable digital documents. Whenever a new insurance policy is issued, it will be in a demat format. The policy document and its details will be taken digitally on a platform. Simply put, the policies will not be issued in paper form, but digitally, and will be kept in an e-insurance account (eIA) of the customer. eIA is the portfolio of insurance policies of a proposer/policyholder held in an electronic form with an insurance repository.

Who will benefit from insurance dematerialisation?

Insurers, insurance repositories and the policyholders are expected to 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 move. 

How will a policyholder benefit by dematerialisation?

The e-insurance account will help policyholders get access to their insurance portfolio at the click of a button. The eIA holder can keep track of insurance policies (life, non-life, including health) under one platform. Servicing of policies will be easier and policyholders can borrow against the policies held in electronic form — just like pledging of shares.

How will the insurers benefit from dematerialisation?

Insurers will save considerably on costs, especially on printing and delivering of policies. In 2021-22, the life insurance industry sold three crore policies digitally, aiding in better risk management. Nearly 50 crore non-life policies were sold — imagine the savings on paper if they were all to be dematerialised.  There are about 30 crore active life insurance policies and these could eventually get converted into electronic form.

What’s in it for the regulator IRDAI to push for dematerialisation?

The regulator on a single dashboard can oversee the entire sector’s activities. This would lead to better monitoring and regulatory oversight of the industry. This is important given the scale of operations of the life insurance industry, which is likely to touch $100 billion in premium receipts.

How are insurance companies taking IRDAI’s mandate on dematerialisation?

As the regulator has mandated dematerialisation, it should move forward in full clip. But the pace would depend largely on how the insurance behemoth LIC will push for it. With the market share of over 60 per cent, any move by the LIC to adopt this earnestly will give a fillip to this exercise. Media reports suggest that the LIC is looking at starting its own depository. 

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

No, e-insurance accounts are offered free of cost to the applicants. There are no charges levied to the individual for opening, maintaining or for changing any details of the eIA. Insurance repositories would most likely be compensated by the insurance companies for the safekeeping of policy data in electronic form.