Don't rush to demat your policy

It might be a cheaper option, but a lack of clarity is choking its growth

SV Ramanan, CEO of CAMS Repository Services says across all insurance repositories only 89,000 e-insurance accounts have been opened (across the country).

The total number of life insurance policyholders is more than 3.3 million. The latest initiatives from the Insurance Regulatory and Development Authority (Irda) saw a relatively slow start, he admits.

Of this number, accounts from metro cities has been less than 45,000, which usually is the higher contributor to the financial services industry, say experts. Ramanan says the main reason behind this is lack of awareness.

Policyholders from tier I and tier II cities have adopted e-insurance better than those in metros, may be because this initiative is bridging the gap in servicing in smaller towns.

The other reason is that e-insurance is still optional, says P Nandgopal, MD and CEO of IndiaFirst Life Insurance. Hence, not all insurers offer it upfront. A policyholder has to ask if the facility is available and only then would he/she get it.

“Opening a demat account is also cumbersome and you can't do it online,” points out Nandgopal. To demat a physical policy, an existing policyholder needs to fill a Service Request Form or Policy Conversion Form. He/she needs to fill one form per insurer indicating his/her policy number.

Say for instance, if a policyholder owns policies of LIC, Reliance Life and Bajaj Allianz Life, he/she would need to fill one form for each conversion. Existing policyholders also need to undergo a Know-Your-Customer (KYC) formality once for demat account.

For KYC, you need your photograph, Permanent Account Number (PAN) or aadhaar card and a cancelled cheque leaf for bank details. If you use PAN, you need an additional proof of address. A new customer will need to approach a repository and open the demat account in a similar fashion.

KYC is a very big show-stopper for existing policyholders, feels a chief executive of a life insurance firm. Plus there is a small cost involved. Currently, policyholders can open e-insurance accounts free of charge. Also, insurers do not charge a fee for converting existing policies to demat form. For this, however, repositories charge around Rs 100. These also charge Rs 100 for account maintenance and up to Rs 50 for servicing requests.

This apart, though a policyholder can own only one demat account, insurance companies may not tie-up with all repositories. This means despite opening an account, you may still have to hold some physical policies if the insurance company and you don't tie-up with a common repository.

“The original e-insurance guidelines in 2011 envisaged that all insurers will tie-up with all repositories. However, the 2013 guidelines were changed a bit and insurers were given the freedom to tie-up with one or more repositories. But in or after April 2014 we may see Irda asking insurers to tie-up with all repositories,” explains Ramanan.

“The initiative has not been promoted. Many are either unaware or unclear about it. Add to that, the perception that life insurance companies only cheat. People are not ready to trust us,” says the chief executive.

Nandgopal feels maintaining a separate demat account for insurance and stocks is also an issue. Additionally, till one system does not stand up on its own, it may not make sense to erect another system beside it. As for demat insurance policies, you want to wait and watch till more clarity emerges.

Given that Finance Ministry has proposing a single demat account for all financial assets, regulators need to come together and make it mandatory and clear hitches to make it succeed.