Examining IRDAI e-Insurance Regulations
[Sidharrth is a Partner at JSA. The following article has been jointly authored by him with Nandini and Shivani, lawyers at JSA. The article was first published on Lexology.]
The Insurance Regulatory and Development Authority of India (IRDAI) has issued the exposure draft of the IRDAI (Issuance of e-Insurance Policies) Regulations 2022 (IRDAI e-Insurance Regulations) for public comments. The key changes proposed by the draft IRDAI e-Insurance Regulations are as follows:
An electronic insurance account (eIA) (with a unique eIA number) is mandatory for every policyholder.
All policies issued to a policyholder are required to be held in the eIA of such policyholder.
Subject to any exemptions that may be granted by IRDAI, every insurer is required to issue all insurance policies in electronic form (irrespective of whether the proposal is received in electronic form or otherwise).
An insurer is required to offer discount (in accordance with the guidelines issued by IRDAI) in the premium rates to the policyholder if the policy is purchased directly via the electronic platform.
Insurers are required to provide all existing policyholders with the facility of an electronic insurance policy.
All existing policies are required to be issued to the insurance repositories (i.e., an entity that has been granted a certificate of registration by IRDAI for maintaining data of insurance policies in electronic form on behalf of the insurer) within 12 months from the effective date of the IRDAI e-Insurance Regulations, with the relevant policyholders being informed in accordance with the IRDAI e-Insurance Regulations.
Over the last few years, IRDAI has been promoting dematerialization of insurance policies for ensuring quick retrieval of insurance policies and minimizing the risk of losing insurance policies held in physical form. The process of dematerialization of insurance policies is akin to the universal practice of holding securities in dematerialized form with the following key differences:
Whereas individuals can use the demat account of their securities for trading securities, the insurance demat account acts only as a repository for storing insurance policies.
Whereas individuals are permitted to open multiple demat accounts for trading securities (with different depositories and brokers), individuals can open only a single account with an insurance repository (which can then be ported from one insurance repository to another).
It is understood that IRDAI has issued these draft IRDAI e-Insurance Regulations after deliberations with relevant stakeholders, given that its initiative of dematerializing insurance policies in the past did not gain significant traction due to the costs involved and timing concerns. Accessibility to the internet, the extent of internet penetration, and the literacy rates in India are the key drivers of success of this digitalization drive. According to a report by IAMAI and Kantar, India has only 692,000,000 active internet users. Further, as of the year 2021 (based on the National Statistical Office’s data), India’s average literacy rate was 77.70%. Given that internet facilities are not yet available to more than half of India’s population and the literacy rate is not close to 100%, it is likely that, while the process of issuance of electronic insurance policies can commence, the compulsory issuance of such policies will need to be made subject to certain exemptions. IRDAI’s objective of boosting insurance penetration in India will need to be kept in mind while determining the exemptions as a large demographic of potential policyholders in India are at present in the rural areas.
Given the Government of India’s emphasis on digitalization, it is likely that, with the requisite exemptions, this proposal of IRDAI will be embraced by the stakeholders, particularly as it will lead to reduction in the paperwork and creation of a single portal for: (a) accessing policy documents (particularly necessary in the case of health and life insurance where the policyholder’s nominee may require immediate access); (b) raising claims; and (c) KYC verification. What remains to be seen is whether this digitalization initiative becomes a useful tool in penetrating the insurance market in India, and if the benefits of this initiative outweigh the logistical issues and costs involved.