Investors have been dealing with dematerialized shares of companies and mutual funds for quite some time now. The experience has been wonderful. They do not have to maintain shares or mutual funds in physical forms which are traded very often and are quite a cumbersome process to do in physical form.
Considering the success of shares and mutual funds in dematerialized, insurance regulatory development authority (IRDA) has come up with the initiative to manage insurance in dematerialized form. This will help insured maintain insurance details in demat form with any insurance repository (IR). This means they wonít have to go through the hassle of maintaining multiple documents for a number of years. Currently, there are five IRs in India. They are
* Central Insurance Repository Limited ( CIRL )
* NSDL Data Management Limited
* SHCIL Projects Limited
* Karvy Insurance repository Limited
* CAMS Repository Services Limited
However, like any initiative, this initiative is in its initial stages and will take some time to shape up so that the insured find it easy to use. Letís take a look at this initiative in more detail and address some of the lacking aspects.
Demat accounts are must
For getting your insurance in demat accounts, insured must open a demat account with one of the five IRs. Opening demat account requires know your customer (KYC) formality which is time consuming for most of the people. KYC norms require you to submit PAN card, address proof, identity proof, and photograph. This process is independent of the insurance process. However, this is a one time process and once demat account is opened, subsequent insurance can be bought in demat form.
You may not maintain all your insurance policies with one demat account
IRDA has not made it mandatory for insurance companies to offer insurance through all the IRs. The IRs manage the demat accounts. Hence if policy holders do have their demat account with an IR and that IR has no tie up with the insurance company from which the customer has taken the policy, he or she cannot dematerialize this policy with the existing demat account.
Letís take an example; suppose a policy holder, Anjan, has a policy from LIC. To convert this policy into dematerialized form, Anjan has to open a demat account with the IR which has a tie up with LIC. Letís say LIC has a tie up with Karvy and Anjan opens a demat account with Karvy. Now his LIC policy can be converted into digital form. Suppose Anjan also has a policy offered by HDFC. He wants to convert this too into digital form using his demat account with Karvy. However, HDFC has tie-up with CAMS insurance repository. In this case, Anjan will not be able to get his HDFC policy into dematerialized form. He will have to open another demat account with CAMS to convert his HDFC policy.
This is certainly a big problem. The whole idea of digitization of insurance policies is to reduce the paper work associated with insurance policy and filling multiple forms for opening multiple demat account kills the very purpose of it.
There is still negotiation going on between insurance companies and IR
Insurance companies are still in the negotiation phase on tie up with IRs. As explained in the previous point, IRs will have to tie-up with multiple IRs to enable its customers digitize insurance policies. There will be cost involved in this and hence this must be factored.
Demat account costs money to maintain
Insurance premiums are increasing every year. On top of that, most of the demat accounts may come at an annual maintenance fee. This could be a deterrent to policy holders.
Not mandatory for insurance companies to tie up with all IRs
As mentioned, if insurance companies do not tie-up with all the IRs, policy holders will have to open multiple demat accounts. This may increase the cost for policy holders as well as insurance companies. This means higher premium. It was mandated in the initial policy document that insurance companies have to tie up with all IRs but the revised guidelines have taken out this requirement.
These problems are, however, initial problems. Whenever there are new initiatives, questions are bound to come up and it should. This would only make the initiative more successful in the long run. Finance ministry is keen to ensure that investors can manage their financial assets in one demat account. Hopefully, things will improve for the better but for now, there exists a need for more reform and clarity on e-Insurance.