Like dematerialisation of securities, it will offer dual benefits of cost-effectiveness and convenience.
The hassle of managing the paperwork for several insurance policies may soon become a relic. Going forward, you will be able to hold these in a ‘demat’ account, in an electronic format.
But, first, based on the guidelines issued by the Insurance Regulatory and Development Authority (Irda) last Friday, repositories on the lines of the securities’ depositories (such as the National Securities Depository or the Central Securities Depository) will be set up. These agencies would in turn open and hold the e-insurance account.
Industry players deem it a mammoth exercise due to the large number of policyholders and, hence, feel a timeline for the shift cannot be specified. However, understanding the procedural requirements and its advantages will help facilitate the shift, whenever it happens.
THE CONCEPT
Each individual will have his/her own separate and distinct account, with a unique account number. All life and general policies from different insurers can be held in this account. Similarly, parents or guardians can open an account for their minor children as well. As for plans such as family floater health policies, there isn’t much clarity about whose account it would be held as yet, according to Suresh Agarwal, executive vice-president, Kotak Mahindra Old Mutual Life Insurance. Most probably, it will be the proposer of the policy.
| ADVANTAGES OF GOING THE DEMAT WAY |
| * Single account for all policies will help consolidate the insurance portfolio |
| * Borrowing against a demat policy easier than borrowing against a policy in hard copy |
| * Communication with insurer will improve as the account will serve as a single point contact |
| * In case of a change of address, inform only the repository and not each insurer individually |
KNOW-YOUR-CUSTOMER (KYC) COMPLIANCE
This will depend on whether you approach the repository directly to open an account or via an insurer. In the former case, the repository will have to carry out the due diligence for establishing the genuineness of your identity. You will have to give documents for identity and address proof. In case any additional detail is required, the repository will have to mail within three days of receiving the application. And, details of the method of operating the account within seven days of the application.
However, if you choose to open the account through an insurer, he/she will collect the requisite documents from you on the repository’s behalf. Once the account is opened, any basic KYC compliance will be waived to avoid duplication of paperwork. Also, say you change your address, you will not have to approach the different insurers separately. You can change it by giving the necessary documents to the repository, who in turn will inform the policy issuers.
COSTS
Demat accounts for securities entail an account opening charge as well as an annual maintenance fee. However Irda, in its circular, has categorically stated that, “No cost of e-insurance (account) shall be collected from e-insurance account holders, either by an insurance repository or an insurer.” Prima facie, this would mean all costs must be borne by the insurer, says K G Krishnamoorthy Rao, CEO, Future Generali General Insurance. But insurers await further clarity on this front.
This may, however, seem logical, given insurers expect substantial savings the printing charges, courier charges, etc, in long term.
ADVANTAGES
The basic advantage would be that you won’t have to maintain policy papers for a long period. Besides, you could get a lien or borrow against a demat insurance policy much more easily as compared to physical policies. In case of a physical policy, you must first fill an application and send it to the insurer, who will forward it to the lender. While in case of demat policies, you can apply to the repository, who will instantly mark a lien against it and forward it to the lender. “The former is a tedious process and could even take a month. However, in case on demat policies, it is much faster and could be done in as less as 24 hours,” says Agarwal.
Insurers also expect communication with the policyholders will greatly improve post the shift to a demat regime. Vinay Taluja, principal officer, Bajaj Capital Insurance Broking, explains why. “The e-insurance account will function as a single point contact for the client. It is expected that he/she will be far more pro-active in this case, as communication for all policies can get impacted if he/she fails to provide the correct contact details,” he says.
The shift to the demat system may be hailed for the ease and convenience of operation. However, insurers feel it won’t be easy, especially for the rural population or those not adept at technology.
