core sector communique

Why not demat insurance too?

After the successful transition of shares and mutual funds to the electronic format, it is now time to turn attention to the other important instrument of the financial markets — life insurance. The insurance regulator IRDA (Insurance Regulatory and Development Authority) is expected to give its nod to the dematerialisation proposal soon.

To be sure, dematerialisation of insurance policy documents offers substantial benefits to all stakeholders. Policyholders, of course, are the biggest beneficiaries as they are not required to physically preserve policy documents.

Apart from the assurance that their policy document is in electronic format, policyholders also avail of single reference point for all their life insurance purchases. This is on the lines of the consolidated mutual fund statement that displays investment details across mutual funds.

This takes a load off the policyholder who invests a great deal of time and effort in tracking various policies, especially at the time of paying the premium. Equally relieved will be the family members who do not have to run pillar to post to seek policy details in case of an emergency.

Win-Win for stakeholders

The other convenience for the policyholder is focused customer care. Once the demat process is completed it is envisaged that the insurance repositories will assume the role of customer care, as opposed to being mere suppliers of electronic data, performing a more active role in servicing requests.

Demat of insurance documents will also alleviate logistics issues related to delivering the policy, especially to customers in far- flung locations as also to those who are travelling as the policy gets credited to the customer’s electronic insurance account much like a passbook entry.

Evidently, digitisation of insurance policies will bring to the fore benefits that other financial segments have availed of, post-digitisation, such as stock markets. So policyholders can expect efficiencies and transparency in services, all ingredients of a richer customer experience.

For the suppliers i.e. insurers, digitisation will streamline operations and endear them to customers. It will also allow for superior underwriting as data is captured more efficiently. Moreover, customers can expect better quality products as insurers mine data for course correction.

For the IRDA, digitisation will help identify industry trends more easily and quickly based on digitised data available with insurers. This, in turn, will help the regulator usher in reforms and best practices and eschew malpractices by enhancing its supervisory role.

Of course, digitisation is expected to be a protracted process with phased rollout dictated by infrastructure and regulatory guidelines. Post-digitisation, benefits will accrue to policyholders who have opted for the dematerialisation format. Customers who continue to hold policies in paper format will continue to receive support in the traditional manner, again on the lines of the stock market experience where demat benefits are visible only to owners of demat shares. Of course, to an extent this has been resolved by regulators by making demat of new shares compulsory, ensuring a uniform experience.

On the insurance side, policyholders will have the option to continue with policies in the existing format or opt for the electronic form. Having chosen the electronic form, they can revert to the physical form. So there is considerable flexibility in the demat proposal for the life insurance industry.

Good news for agents

Demat also brings good news for agents as they will be supported by the insurance repositories in servicing client requests. As repositories share the customer service function, agents will find more time for client advisory and acquisition. In a way, digitisation will lead to specialisation with units performing what they are best qualified to do.

Various participants from the industry and the repositories are working together to ascertain the processes and challenges that this new industry-wide initiative may pose. It is felt that it will be some time before the entire gamut of services, offered by the insurance companies, migrate to the repositories, considering the diverse product range and required system integration across the industry. Despite the challenges, digitisation definitely has something for all the stakeholders in the industry, making it a preferred choice.

- Umesh Shanmugam