Published in Mint on Jun 21 2016
The world is moving online and so should the way you buy the most important instrument in your money box: insurance. To help build an online platform for insurance, the Insurance Regulatory and Development Authority of India (Irdai), earlier this month, drafted the Insurance E-commerce Regulations (http://bit.ly/28KdHMg ). With the digital platform, and by promoting e-commerce, Irdai hopes to lower the cost of transacting insurance business and bring higher efficiencies and greater reach.
The draft, which was available for public comments till 20 June, lays out guidelines for a self-network platform to sell and service policies online.
According to the draft, any entity that wants to offer policies online will do so through a self-network platform—this can be your regular website or a mobile app or both. “You will still continue to be able to buy policies through a regular website, but what will change is that not just web aggregators but agents and brokers will also be able to sell policies online. Secondly, these intermediaries will now have to fulfil end-to-end customer requirements and have to build linkages with the insurer not just for sales purposes but also for policy service requests so that they own the customer and service them on an on-going basis,” said Sanjay Tripathy, senior executive vice president-head, marketing, analytics, digital and e-commerce.
Insurers, brokers, agents, intermediaries or any other entity recognised by Irdai can sell policies through this platform. Insurance intermediaries include distributors such as corporate agents, web aggregators and insurance marketing firms. In the case of agents, since they are tied to one insurer, the platform would be treated as that of an insurer and the insurer will be responsible for compliance.
“These guidelines recognise the online medium as a platform to sell insurance policies. They also clarify operational issues like using physical signatures in an online sale; the need for physical signatures has been done away with,” said K.S. Gopalakrishnan, managing director and chief executive officer, Aegon Life Insurance Co. Ltd.
Wet signatures or physical signatures will no longer be needed. “Instead, an electronic signature or digital signature or single factor authentication such as one-time password, PAN (Permanent Account Number) card and date of birth authentication may be used for underwriting and acceptance of risk for insurance business transacted on the insurance self-network platform,” said the circular.
Further, in terms of the know-your-customer (KYC) process, the draft states that this can be undertaken using facilities such as e-KYC offered by Unique Identification Authority of India using e-Aadhaar or e-PAN facility offered by the National Securities Depository Ltd.
But the draft makes an e-insurance account mandatory for online purchase of a policy. An e-insurance account lets you hold your policy in a digital form. Once the policy is issued online, the document will have to be credited to the e-insurance account of the policyholder immediately. Currently, e-insurance account is not mandatory for online purchase, so this step is likely to encourage customers to open demat insurance accounts.
“Through this, the entire process will be online, end to end. This will not only save cost for the insurer, but also make the processes more efficient, and offer quick turn-around time to policyholders,” said S.V. Ramanan, chief executive officer, CAMS Insurance Repository Services Ltd. “Today, the typical turnaround time for issuance is T+2 to T+7, T being the date of signing the application form. Online, this can be done in T+2 hours to T+4 hours,” he added.
How will it work?
An insurer or a licenced intermediary or any other entity recognised by the regulator can sell insurance policies through the online platform, according to the draft.
“The draft states that entities recognised by the regulator other than the intermediaries will be allowed to sell insurance policies. This means that e-commerce portals may also be allowed to sell insurance and earn a commission,” said Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd. All products that are approved by Irdai can be offered online and these products will have to be pre-fixed with the letter ‘i’ to distinguish them from regular products.
Even as these policies are sold online, the draft allows the insurer to build in commissions into these products as they may be sold through the intermediaries as well.
Further, the draft also allows insurers to offer differential pricing for the same product when sold online. “More clarity is needed with the pricing aspect. Intermediaries even when they sell policies online will still get paid a commission, so it’s not as if the products online will have differential pricing. Further, it should not make pre-fixing mandatory. This will create confusion as a product sold online with the pre-fix ‘i’ may not necessarily mean price difference or exclusivity. Insurers will also have to showcase two products on its website one with a pre-fix ‘i’, and the other without any tangible difference in some cases,” said Tripathy.
In terms of premium payment, cash transactions will not be permitted for online sales, and as far as disclosures and solicitations go, the insurer or intermediary will have to make sure that the website explains the product features and the type of consumer for whom it is intended. Exclusions and limitations also need to be spelt out along with total premium and other charges and taxes that the consumer will have to pay. Where the exact amount can’t be indicated, the website will have to indicate the basis for the calculation of the amount.
The website will also need to explain the free-look period and duration.
If an intermediary sells insurance policies of multiple insurers, the guidelines state that it will not make any promise or commitment to insurance companies regarding sales. Further, while displaying the product features of various insurers, the intermediary will not favour any one insurer. Customer reviews and seller ratings can be shown. “Ratings are not allowed for web aggregators but are allowed for e-commerce. This inconsistency should be removed,” added Mehta.
In terms of policyholder protection, these websites will need to have a mechanism to address policyholder grievances and will have to put in place measures to safeguard the privacy of data maintained and to prevent manipulation of records and transactions.
“By doing away with physical signatures and allowing e-KYC, the process of buying an insurance policy is completely online. The draft recognises the online medium and has also put in place measures of data security, which, till now, were not effective,” said Mehta.
To begin with, some say making e-insurance mandatory will be detrimental. “Overall, the new norms are progressive. However, general insurance policies such as two-wheeler, health, or travel insurance don’t require KYC today, and have quick issuance online. By mandating e-insurance, the whole process becomes tedious and thus a significant proportion of customers may prefer buying offline instead,” said Yashish Dahiya, co-founder, Policybazaar.com.
The other concern that the draft guidelines don’t clearly address is assigning responsibility of sale for e-commerce websites.
“What is not clear is who will be responsible for the sale of insurance through them. In the case of existing insurance intermediaries, the responsibilities are clearly laid out,” said Mehta.
Cost-wise, too, the industry doesn’t expect an immediate benefit. “An online product will cost less than an offline one if distribution costs are lower. If an insurer continues to pay normal commissions and incurs the same acquisition cost, price won’t go down. One could argue that the acquisition cost online should be lower than that of the offline model, but it depends on the marketing strategy of the company. Regulation in itself won’t necessarily result in lower premiums,” said Gopalakrishnan.
However, some argue that cost efficiency may get built over time.
“We have to pay huge marketing costs and technology platform development costs apart from regular overheads. But if insurance becomes a pull product and customers become more comfortable buying insurance online, we can save on the marketing costs in the long run, and in time pass on that savings to the customer,” said Tripathy.
The insurance regulator has laid down the infrastructure for digital sale of insurance and that is definitely a step in the right direction. The draft guidelines, however, needs to be more watertight in terms of apportioning fiduciary responsibility for the customers.