IRDAI Mandates Demat Accounts For Insurance Policies: Enhancing Accessibility, Security

The insurance sector has become a focal point for the government's efforts to ensure that it is easily accessible to the entire population by 2047. To support this purpose, credit rating agencies are proposing multiple amendments to make it more visible and hassle-free.

Recently, the Insurance Regulatory and Development Authority of India (IRDAI) made it mandatory, effective from 1st April, to keep a demat account compulsory for all types of insurance. Under this new rule, all insurers must issue policies in dematerialised form.

The implementation of e-insurance in a demat-like format was initiated by insurance companies a few years back and the same was given as an option to policyholders. "By making this compulsory, overall, this will help in streamlining processes, reducing paperwork and enhancing convenience for policyholders while also modernizing the insurance industry, said Raj Khosla Founder and MD - MyMoneyMantra.

The insurance regulator has granted the Certificate of Registration to four entities to act as 'Insurance Repositories' authorised to open e-Insurance Accounts (eIA). These entities include NSDL Database Management, Central Insurance Repository, Karvy Insurance Repository, and CAMS Repository Services.

All insurers and brokers supported the decision, stating that this shift is beneficial for customers as it ensures greater accessibility and convenience in managing their insurance plans without the risk of losing hard copies of documents. "We believe that making e-insurance mandatory will help people access their insurance policies more easily. This means that policyholders can view their insurance information anytime, anywhere, by storing all their policies in one place called an e-Insurance Account. With policies stored in a demat-like format, individuals can easily access and track their policy details, endorsements, and renewals online, as well as make any updates they need, such as changes to their contact information or address. This eliminates the need for physical paperwork, which can be easily lost or damaged. Overall, it will make processes faster and more accurate," said Siddharth Singhal, Business Head - Health Insurance, Policybazaar.

Claim Settlement
When people can easily access their different policies via a demat account, it also facilitates quicker claim settlement besides providing convenience to policyholders in managing their policies. "Making opening e-Insurance Accounts (eIA) mandatory for new policyholders is a great initiative. It will facilitate quicker claim settlement besides providing convenience to policyholders in managing their policies. ICICI Prudential Life has been opening eIAs for 100 per cent of eligible policies since FY2014, across all insurance repositories. As of March 2024, we have opened approx. 3.8 million eIAs, which is one of the highest in the Indian life insurance industry," said Amish Banker, Senior Executive Vice President, Customer Service and Operations, ICICI Prudential Life Insurance.

Challenges
All new implementations have their pros and cons during the initial stages, so the transition to E-Insurance in demat format is no exception. Security and safeguarding policyholders' identities in this digital format will be a challenge, requiring investment from insurance companies. While it may introduce new challenges, the primary aim of the new rule is to ensure accessibility, transparency, and efficiency for policyholders. "Insurance companies are expected to implement robust security measures to protect sensitive policyholder information through multi-factor authentication, secure storage practices, and minimising the risk of unauthorised access or data breaches," added Khosla.

To deal with cyber security fraud and safety, insurance companies are expected to implement robust security measures to protect sensitive policyholder information, through multi-factor authentication, secure storage practices and minimising the risk of unauthorized access or data breaches. "The IRDAI’s mandate to hold insurance policies in an electronic format is a welcome move as it facilitates a single view of all policies, eases customer onboarding, and reduces the possibility of fraud, including agent fraud. In light of increasing cyber-attacks and malicious attempts to access sensitive information, insurance companies need to implement best-in-class encryption standards and have strong authentication mechanisms and role-based access control for robust and secure document management," said Ranjan R Reddy, Founder & CEO, Bureau.

In the long run, managing electronic policies could be more cost-effective and efficient for insurance companies. However, Insurance companies will have to invest initially and must have robust cyber-security measures to protect sensitive policyholder information in the now prevailing digital era, Khosla added.

Manish Tewari, Co-Founder, Spydra Technologies, said, "With the mandatory adoption of e-insurance in a demat-like format, insurance companies face several cybersecurity hurdles. These hurdles include data breaches, phishing attacks, ransomware threats, regulatory compliance issues, and more. To address these risks, insurance companies must invest in robust cybersecurity measures such as encryption, regular security audits, blockchain security protocols (such as consensus mechanisms and cryptographic techniques), and employee training programmes."