In a bid to encourage e-insurance or dematerialisation of insurance policies, the Insurance Regulatory and Development Authority of India 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 be forthcoming to offer the discount? Is price the only hurdle that is stopping insurance buyers from opting for e-insurance?
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 may not be practically 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 the expenses spent 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. But servicing the policy is still done by the insurance company. Until all policies are converted into e-policies, insurance companies may incur a double cost — fees paid to repositories for maintaining the e-policies and money spent on issuing regular policies.
According to a senior official from another private life insurance company, the discount on account of demat may work out to only Rs 100-150 per policy and it needs to be seen if buyers feel that is worth the trouble of converting the policies into electronic form. “The real discount we can offer on premiums is only in case where the policies are bought directly from the company, because we save on the agents’ commissions,’’ he says.
Even making demat compulsory will leave only to a moderate saving in costs. But even that is rather difficult to implement at lower market segments, since only a minority are electronically savvy policyholders. “In fact two-thirds of our customers have no email ids to provide us,” Viswanand adds.
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. But the cumbersome paper-based documentation required to convert policies into demat or even to issue e-insurance policies was a big hurdle.
“The single form for all insurance repositories and electronic consent made applicable for conversion to e-insurance is a welcome step. However, until annual maintenance fee charged by insurance repositories drops further and/or they take on additional policy servicing aspects as well, demat of insurance policies is unlikely to take off in a big way,” Viswanand adds.
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.