Big bang demat insurance scheme sees few takers. Here is why

It was supposed to be the first such move in the insurance market across the world. In 2013, the Insurance Regulatory and Development Authority of India (IRDAI) started an ambitious project to get insurance digitised, mainly to solve the problems surrounding the loss of an insurance policy document and the ensuing chaos to get a claim passed. Four years later, the numbers are dismal.

Less than 2 percent of the about 340 million insurance policies have been digitised. While four entities have been licensed as insurance repositories by IRDAI, insurers said that the demand from customers have been low.

“When we are paying the repositories per policy digitised, customers who have opted for a digital policy also want a physical copy of the policies. Because of this, we are losing money on both the fronts,” said a senior private life insurance official.

In 2014, IRDAI has asked all life insurers to participate in the pilot launch of Insurance Repositories (IRs) from July 1 of that year.  The move is aimed at ensuring life insurers have at least some insurance policies in a digital format.

An insurance repository is a facility to help policy holders buy and keep policies in electronic form, rather than as a paper document. These repositories, like share depositories or mutual fund transfer agencies, would hold electronic records of policies issued to individuals. These are called 'electronic policies' or 'e-policies', held in an electronic insurance account.

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M Saraswathy

Special Correspondent|Moneycontrol

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In its issuance of e-insurance policies regulations 2016, IRDAI had said that electronic insurance will become mandatory for annual premium equal to or above Rs 10,000 (single/annual premium) in life insurance policies. However, it has not yet been implemented.

The country’s largest insurer Life Insurance Corporation of India (LIC), has not been a part of this system since they did not want to incur additional costs to digitise policies. Instead, they have started their own e-services which can be used to avail of a list of services including viewing the policies in an electronic format.

"It was earlier anticipated that all insurers will have to tie up with repositories. But now that since it has been made optional, business for insurance repositories has been slow," said the chief executive of an IRDAI licensed repository. India First Insurance had launched the first digitised policy in September 2013.

Though insurance companies have been engaged in active campaigns to motivate people to digitise their policies, the response has been poor. It is estimated that an amount of Rs 150-200 per policy is spent by a company annually in maintaining policies in physical form. Hence, having an e-Insurance Account which is a unique number generated by a repository to store all policies in a digital format, will save about Rs 100 crore for the sector annually.

Further, the repositories were to also offer value-added services to customers including premium payments, purchase on riders on one platform. But that has been a slow start.

“When we are already offering policy-related services, getting an external player to provide the same does not make business sense especially because customers will have to pay for these while it is free if you take it from an insurance company,” said the chief executive of a mid-size insurance company.

Whenever a new policy is issued, all proposal forms now have an option to create an electronic insurance account. But insurers said that customers have not been forthcoming even though all tie-ups with the repositories have been in place.

These repositories are required to maintain records of e-insurance accounts with a unique number, records of e-insurance policies issued and of reconversion to physical form, an index of policy holders and their nominees/ assignees/beneficiaries in the respective life insurance policies, among others. They also have to maintain a history of claim data.

While it has been indicated that having e-insurance will become mandatory in the next two years, insurers said that till then the industry will have to be content with the minimal transactions in this space.

"Unless made compulsory, this scheme is unlikely to attract huge volumes. Till then, we have to wait and watch," said the chief executive of a bank-promoted private insurer.