Sunday, February 5, 2012

Insurance policies may soon be available in demat form.

India would probably be the first country in the world to undertake such a huge exercise to transform physical insurance policy certificates into electronic form. In fact, life insurance policies are the only major retail financial product that are still issued and maintained entirely in physical, paper form.

After shares and mutual funds, it is now the turn of insurance policies to be digitized, with insurance regulator IRDA expected to give the nod for making policies available in demat form.

Insurance companies and insurance repositories are working on issues connected to the proposal. Several aspects related to making insurance policies available in demat form have been discussed, Life Insurance Council Secretary General S B Mathur said.

An insurance repository is a company maintaining data on insurance policies in electronic form on behalf of insurers, including the history of transactions during the term of the policy.

"Finally, it has to be vetted and approved by the IRDA," he said.


According to a senior official of a private sector life insurance company, there are certain issues with respect to life policies being available in demat form. These include pricing and the cost of the demat and who would bear the cost.

If the proposal becomes a reality, new life insurance policies and over 35 crore life insurance policies issued by 24 life insurance companies that are currently in force will have the option of being held in electronic form.

Shares and mutual funds were 'dematerialized' many years back and it is no longer possible or necessary to have a physical instrument to prove or acquire ownership of these assets as they are kept and traded in electronic form, making them safer and easier to manage.

In fact, life insurance policies are the only major retail financial product that are still issued and maintained entirely in physical, paper form.

India would probably be the first country in the world to undertake such a huge exercise to transform physical insurance policy certificates into electronic form.

According to sources, IRDA is expected to give the green signal for some of the insurance repositories to start operations, paving the way for opening of e-insurance accounts and issuance of e-policies soon.

IRDA has already shortlisted five entities -- CAMS, Karvy, NSDL, CDSL and STCI -- to set up and operate insurance repositories.

While eventually all policies of an individual -- life, health and general -- can be held in electronic form, IRDA is likely to start with life insurance policies in the first phase.

In term of benefits, electronic policies are safe, convenient and easy to manage. Most of the traditional life insurance policies are long-term contracts and safe-keeping and ease of access for dependents in their hour of need can be quite challenging for holders of these policies. E-policies will take that burden off the shoulders of policy holders.