IRDAI e-Insurance regulations – Lexology

Indian Insurance Regulatory and Development Authority (“IRDAI”) has published the IRDAI (Issuance of e-Insurance Policies) Exposure Draft, 2022 (“IRDAI e-Insurance Regulations”) for public comment. The main changes proposed by the draft IRDAI e-Insurance regulations are as follows:

1. An electronic insurance account (“eIA”) (with a unique eIA number) is mandatory for each insured.
2. All policies issued to a policyholder must be held in that policyholder’s EIA.
3. Subject to any exemptions granted by IRDAI, all insurers are required to issue all insurance policies in electronic form (whether the proposal is received in electronic form or otherwise).
4. An insurer is required to offer a discount (in accordance with the guidelines issued by the IRDAI) in the premium rates to the policyholder if the policy is taken out directly via the electronic platform.
5. Insurers are required to provide all existing policyholders with the option of an electronic insurance policy.
6. All existing policies must be issued to insurance repositories (i.e..e., an entity that has obtained a certificate of registration by IRDAI for the retention of insurance policy data in electronic form on behalf of the insurer) within 12 (twelve) months from the date of entry into force of the IRDAI e-Insurance Regulations, the policyholders concerned being informed in accordance with the IRDAI e-Insurance Regulations.

In recent years, IRDAI has promoted the dematerialization of insurance policies to ensure rapid recovery of insurance policies and minimize the risk of loss of insurance policies held in physical form. The process of dematerialization of insurance contracts is similar to the universal practice of holding securities in dematerialized form with the following main differences:

1. While individuals can use their securities demat account to trade securities, the insurance demat account only acts as a repository to store insurance policies.
2. While individuals are allowed to open multiple demat accounts to trade securities (with different custodians and brokers), individuals can only open one account with an insurance repository (which can then be ported from one insurance reference to another).

It is understood that IRDAI has issued this Draft IRDAI e-Insurance Regulations after deliberations with relevant stakeholders, as its insurance policy dematerialization initiative in the past has not gained popularity due to costs involved and timing issues. Internet accessibility, the extent of Internet penetration and literacy rates in India are the main drivers for the success of this digitization campaign. According to a report by IAMAI and Kantar, India has only 692,000,000 (six hundred and ninety-two million) active internet users. Moreover, as of the year 2021 (based on data from the National Statistical Office), India’s average literacy rate was 77.70%. Given that more than half of India’s population does not yet have internet access and the literacy rate is not close to 100%, it is likely that even if the process of issuing policies d e-insurance can begin, the compulsory issuance of such policies must be subject to certain exemptions. IRDAI’s goal of boosting insurance penetration in India should be kept in mind when determining exemptions, as a large number of potential policyholders in India are currently in rural areas.

Given the Government of India’s emphasis on digitalization, it is likely that with the required exemptions, this IRDAI proposal will be adopted by stakeholders, especially since it will lead to the reduction of paperwork and the creation of a single portal for: (a) accessing policy documents (particularly necessary in the case of health and life insurance where the agent of the policyholder may require immediate access); (b) make complaints; and (c) KYC verification. It remains to be seen whether this digitization initiative becomes a useful tool for penetrating the insurance market in India, and whether the benefits of this move outweigh the logistical issues and costs involved.