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To encourage e-insurance or dematerialisation of insurance policies, the Insurance Regulatory and Development Authority of India (Irdai) has suggested that insurance companies offer a discount in premium for policies issued in electronic form, since the cost incurred by the insurers is lower in case of e-policies. The regulator said this in revised guidelines on Insurance Repositories and Electronic Issuance of Policy. But will insurance companies offer a discount? Is price the only hurdle that is stopping insurance buyers from opting for e-insurance?
At present, the regulator is only suggesting a way forward, which is for insurance companies to consider offering a discount on premiums to policyholders if they convert to electronic accounts. The regulator has not specified the percentage of discounts or time period when this needs to be implemented from. “The current guidelines are more towards showing a direction to insurance companies,” says Viiveck Verma, executive director, Karvy Insurance Repository.
While there is nothing stopping insurance companies from offering discount on premium by seeking Irdai approval as part of File & Use for e-insurance policies even without any explicit regulatory guidelines, it might not be feasible for companies to do so, says V Viswanand, senior director and COO, Max Life Insurance.
“Going electronic is not resulting in any actual savings for companies, right now. The cost we incur on servicing is mainly on account of the reminder calls made to policyholders for renewal of premiums and customer-initiated servicing aspects. We will have to continue doing this, irrespective of whether the policy is in demat or physical form,” he points out.
By issuing e-insurance, companies can save expenses incurred on printing the policy document, but are still required to send a single page confirmation in physical form to policyholders. This does not add up enough for companies to offer lower premiums across the lifetime of the policy, he adds.
Currently, regulation allows repositories to offer services like updating of addresses and issuing fund statements.
According to a senior official from a private life insurance company, demat of policies makes it easier to track the policy and ensure that it reaches the buyer. But currently distribution is a challenge. “Often, in case of offline policies, it is the agent who discourages buyers from choosing the demat option for fear of losing customers. In case of online policies it is easier to convert demat them,’’ he says.
Verma also agrees that the biggest reason for policyholders not taking to e-insurance has been the lack of awareness and push from insurers and intermediaries. “The agent community has still not fully adapted to the electronic system and insurance still continues to be sold and not bought. The expectation here is for this to be made mandatory and then the uptake will increase substantially,” he says.
However, according to Viswanand, making demat compulsory will lead only to a moderate saving in costs and even that is rather difficult to implement at lower market segments, since only a minority are electronically savvy policyholders. “Two-thirds of our customers have no email ids to provide us,” he points out.
One option could be to make demat mandatory for policies of a certain size, for instance, if premiums are above Rs 50,000 or Rs 1 lakh.
IRDAI launched a pilot project on e-insurance policies in June last year, where it was made mandatory for insurance companies to convert a minimum of 1,000 or 5 per cent of the total individual policies issued into demat form.
Another hurdle is the cumbersome paper-based documentation required to convert policies into demat or even to issue e-insurance policies
"The single form for all insurance repositories and electronic consent made applicable for conversion to e-insurance is a welcome step. Hence, until annual maintenance fee charged by insurance companies drops further and they take on additional policy servicing aspect as well, demat of insurance policies is unlikely to take off in a big way, says Viswanand.
Often, in case of offline policies, it is the agent who discourages buyers from choosing the demat option for fear of losing customers.
“Demat of policies makes it easier to track the policy and ensure that it reaches the buyer. But currently distribution is a challenge," says an insurance company official.
