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The Insurance Regulatory and Development Authority (Irda) has asked all life insurers to participate in the pilot launch of Insurance Repositories (IRs) from July 1, 2014. The move is aimed at ensuring life insurers have at least some insurance policies in digital format.
However, industry players are divided over whether the new system - which allows policy holders to buy and keep insurance policies in electronic form, rather than as a paper document - will be beneficial from the business as well as customer perspective.
So far, five companies have been given licenses to become Irs.
Not all life insurers have tied up with all IRs, which they will have to do in due course. However, it is not clear as to what additional services these IRs will provide, a senior official with a large life insurance company said. "Though they (IRs) would digitise policies, we do not know what the add-on services are. At the face of it, it looks like they would merely provide a platform for viewing documents, for which each IR would charge a commission."
It is expected there would be stiff competition among the IRs. "If an IR offers a better price, there would a tendency to push a customer to get his/her policy digitised with that particular entity. This would be detrimental from a customer perspective," said an insurance industry expert.
S V Ramanan, CEO of CAMS Repository Services, said the pilot - whose duration will be two months from July 1 - will bring clarity to the system as customers can choose which repository's service to avail of.
During the pilot, life insurers will have to convert at least 1,000 or five per cent (whichever is less) of the existing individual policies into electronic form for each of the IRs. This is subject to a lower limit of 250 policies per IR.
Ramanan added that an annual maintenance charge would be applicable, which could be decided between the insurer concerned and the IR.
In the absence of an underlying agreement between insurers and IRs, the fee structure shall be as mutually agreed for the pilot launch. The upper limit of charges has been fixed at Rs 60 for e-Policy Issuance (New policy) payable by the insurer to IR and Rs 40 for e-Policy Conversion (of existing policy).
"This is still cheaper than the Rs 500-600, which companies spend annually per policy's maintenance and storage," Ramanan pointed out.
Irda said during the pilot launch, insurers will not reject any request for electronic policy - both for conversion of existing policies and for issuance of new policies.
Subrat Mohanty, senior executive vice-president (strategy and customer relations) at HDFC Life, explained that the economics work well for new customers who can avail of this facility at the initial stage itself. He added that in the long-run, old customers will also become a part of this process and reap benefits.
For the policies converted/issued in electronic form within an e-insurance account, the IR would be responsible for providing mandatory information such as policy status including premium, net asset value, bonus, loan, claims and nominee/assignment status. Premium due calendar, online premium payment facilitation, premium history and annual statements will also be available.
The repositories have been asked to submit a fortnightly report on digitisation of policies starting from July 16. Any entity not participating in the pilot will be subject to regulatory action by Irda.
At present, there are more than 330 million life insurance policies and 90 million general insurance policies in India. Irda's estimates suggest that an insurance company spends Rs 150-200 per customer a year in maintaining policies in the physical form. The new initiative by Irda is expected to save more than Rs 100 crore for the industry.
