Demat insurance policies will improve financial system's functioning, says RBI

Will facilitate information flow in the system

Demat insurance policies, or insurance policies in electronic format, will improve information flow in the financial system, according to the Reserve Bank of India (RBI). “The initiatives by regulators towards installing centralised databases for large common credit exposures of banks, corporate debentures and insurance policy records are expected to improve the information flow and functioning of the financial system,” RBI said in its Financial Stability Report.

Earlier this year, the Insurance Regulatory and Development Authority (Irda) had brought out regulations on having insurance in electronic format through insurance repositories.

Irda approved five companies — Database Management Limited, Central Insurance Repository Limited, SHCIL Projects Limited, CAMS Repository Services Limited and Karvy Insurance Limited  — as insurance repositories.

The objective of creating insurance repositories is to provide policyholders the facility to keep insurance policies in electronic form, which is easy to handle and the cost of issuance and maintenance of insurance policies is lower. It is also possible to make changes, if required, fast and with accuracy. Policyholders have the option of choosing to either digitise their policy or to have it in the existing format.

RBI in its Financial Stability Report said that even with the use of technology, visiting multiples offices of insurance companies or logging requests/making premium payments through multiple portals of the insurance companies have been posing difficulties to the policyholders.

It added this initiative would enable electronic issuance of insurance policies and it is also possible to convert previously held insurance policies into electronic form through an electronic insurance account (eIA), which is provided free of cost.

RBI said the initiative of insurance repositories, which has been launched on a pilot basis for life insurance, will soon extend to other lines of business including annuities, group and general insurance policies. “Owing to the scale, the insurance repositories promise to bring down the cost of policy servicing, thus enabling the Insurance companies to achieve efficiencies that possibly reduce the premiums and the turnaround times in delivering services," said the central bank.