VBIP & the trend of digitization
Following landmark guidelines regarding video KYC from RBI, regulatory bodies in several sectors have followed suit and envisaged video-based onboarding and KYC verification methods for businesses in their respective sectors.
SEBI has instituted Video In-Person Verification (VIPV) for investor onboarding and IRDAI has followed through with a Video-based Identification Process (VBIP) for all general, life, and standalone health insurers, and eKYC for select insurance companies.
In the most recent push for total digitization, IRDAI has issued a circular permitting all general and health insurers to issue electronic health policies and allow customers to consent to proposal forms using digital OTP-based methods.
IRDAI has also stated that insurers will be allowed to use these digitized methods to issue policies and obtain signatures until 31/3/2021, indicating that this is something of a trial run intended to gauge the effects of digitization on the insurance sector.
So what are the steps that insurers must follow to issue electronic policies?
Rules for issuing electronic health insurance policies
According to its circular, IRDAI has codified the regulations concerning electronic policies as follows.
- Insurers must first obtain consent from the policyholder to send policy documents and proposal forms using digital methods
- Once consent has been obtained, a digital version of the policy documents and a copy of the proposal form will be sent to the policy holder’s registered email ID or mobile number
- The policyholder will simultaneously be informed via SMS that the policy documents and proposal form have been sent digitally
- Insurers must institute a mechanism to confirm that the documents have been successfully delivered to the policyholder and also obtain due confirmation from the policyholder
- A record of the mechanism used to deliver the policy documents electronically must be maintained and preserved
- The policy documents sent digitally must contain all the schedules, terms and conditions, and benefits that constitute the physical version of the same document
- Along with these documents, the policyholders must also be informed that the printing and delivery of physical versions of the digital documents will be delayed due to operational difficulties in the wake of the COVID-19 pandemic
- The electronic policy document shall be seen as equivalent to and as valid as the same document’s physical version. Physical copies of the policy documents shall be made available to the policyholder wherever necessary
- If policy documents or proposal forms cannot be sent electronically, they shall be made available physically to the policyholder
In addition to these regulations, IRDAI has also instituted new regulations that dispense with wet signatures for proposal forms and allow policyholders to provide consent using digital OTP-based methods.
OTP-based consent for proposal forms
IRDAI, in the same circular, has allowed insurers to obtain OTP-based consent on proposal forms from customers. This method is subject to the following regulations.
- The completed proposal form is to be sent to the prospective customer digitally to his or her registered email ID or mobile number in the form of a link
- If the customer wishes to consent to the proposal form, he or she will be allowed to do so using a confirmation link, or through an OTP that’s duly validated
- The insurers must maintain verifiable and legally valid evidence that consent has been obtained for the proposal form
- Insurers shall be responsible for authenticating the customer’s email ID or mobile number through de-duplication of data or other such means
These regulations appear to indicate that customers can provide consent to insurance proposal forms through OTP-based Aadhaar eSign or digital signatures, as these are both legally valid and verifiable evidence for consent according to the IT Act (2000).
What does this mean for insurers and policyholders?
IRDAI states at the beginning of its circular that the provisions for electronic health policies and OTP-based consent are a response to insurers collectively requesting to be exempt from issuing physical forms and documents.
This request comes in the wake of the COVID-19 pandemic, and thus hints at the benefits that insurers expect from the digitization of insurance documents.
The benefits that both insurance providers and policyholders can expect from this circular are as follows.
- Reduced documentation costs
Digitizing documents has allowed other sectors, such as the financial sector, to reduce costs by up to 90%. Insurers can expect the same benefits by digitizing policy documents.
- Faster issuance of policies
Digitized policies can be sent faster than physical copies of the same, allowing insurers to send out more policies and customers to receive policies faster. Digitizing documents and signatures has allowed banks to increase efficiency by 20%, and insurers can look forward to similar advantages.
- Remote document delivery
Documents can be delivered electronically, removing the need for physical interactions and ensuring the safety of both insurance representatives and customers. This is especially prescient given the ongoing COVID-19 pandemic.
- Faster proposal acceptance
By envisaging an electronic OTP-based form of consent, IRDAI has allowed customers to accept proposal forms faster, using just a device with an internet connection. Documents don’t need to be physically transported back and forth from insurers to the customer, and customers can accept proposals from the comfort of their homes. This also goes a long way in ensuring the safety of all stakeholders involved.
- Better safety standards
Both digital documents and electronic consent ensure the safety of everyone involved. Remote and digital documentation is the need of the hour, as IRDAI hints to in its circular, and will encourage more people to obtain insurance. Additionally, the most vulnerable people who are in dire need of insurance policies can obtain policy documents and consent to proposal forms without having to step outside.
- More policies for more people
Digital documents allow insurers to increase their reach and penetrate more markets since the availability of physical means of document transport is no longer a factor with electronic documentation. This will allow more people to access insurance policies and allow insurers to sell more policies.
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