IRDA TO ALLOW DEMAT ACCOUNT FOR INSURANCE

Keeping policies in electronic format will help customers keep track, while insurers can save on distribution
Mumbai: Buyers of life insurance will now be able to save their policies in a digital form instead of having to maintain paper copies of each transaction over the life of the policy, which typically spans between 20 and 30 years.
The Insurance Regulatory and Development Authority (Irda), the industry watchdog, is awaiting a proposal from the Life Insurance Council, an industry lobby, that will allow life insurers to dematerialize life insurance policies, just like company shares.
“Once the recommendations come to us, we will approve it,” said a senior Irda official, who did not want to be identified. “Insurance policies in demat form will help in smoother expansion of the industry, lower distribution costs, and higher transparency regarding benefit illustrations and costs involved for a policyholder.”
A 12-member committee of the Life Insurance Council is expected to submit these recommendations to Irda next month, said S.B. Mathur, the council’s secretary general.
Dematerialization (demat) means holding an investment in an electronic form, rather than in a physical form. Two depositories—National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL)—collectively hold and manage all demat accounts in the country.
The Life Insurance Council committee is checking if the technology available at NSDL and CDSL is suitable, and if all required information related to the different types of life policies can be handled by the depository houses.
Currently, at least 16 million investor accounts are collectively managed by the two depositories. Even if a quarter of the 50 million policies sold during the fiscal year ended March 2009 are issued in demat form, it would mean almost doubling the number of accounts at the depositories.
One of the key benefits of a demat form for insurance will be the ready disclosure of all policy-related information, including commissions and fees paid to the company, exact benefits offered, premium payment and renewal-related dates, and terms and conditions of risks covered.
A number of customers buy insurance without knowing enough about the commissions paid and terms of risk cover, leading to mis-selling, a phenomenon that experts say has led to an unnaturally high rate of lapsed policies.