IRDAI, in what could be a major gamechanging move, is considering allowing portability of life insurance policies so that policyholders can switch from one insurer to another without surrendering their existing policies nor losing a portion of the premium paid to date.
This was reported by the economic daily Mint in a story quoting three people including a regulatory official on condition of anonymity.
IRDAI's discussions are in early stages, and portability is likely to happen after digitalisation of the industry is complete.
By allowing portability, IRDAI aims to save customers the cost of surrenders when switching insurers if they are dissatisfied with their existing insurer. The regulator has already allowed portability in health insurance policies since 2011.
Portability can of course make life easier for policyholders in terms of services and costs and can check mis-selling.
Under present rules, such a transfer is not allowed. If a policyholder wishes to discontinue his existing policy before it reaches maturity, he has to pay a “surrender charge”, which can be as much as 70% of premiums paid till date.
Can a long-term contract like life insurance be made portable? Even if it is, it could be a great challenge for the life insurance players to implement it in letter and spirit.
Maybe pure life risk policies can be made portable for continuity only. In such policies, there should be a way to earmark a portion of earned premium if no claim has been admitted and the aggregated amount should also be ported to the new insurer.
Life insurance policy portability will need changes in underwriting policies for insurers, standardisation of prices, mortality and morbidity rates used by different insurers and mandatory electronic issuance.
IRDAI is already in the process of mandating issuance of life insurance policies in a digital format beyond a certain threshold premium.
Of course, for one insurer, taking over the liability of another insurer for a customer is not easy since the basic style of underwriting varies. An important underlying factor for portability is the presence of a central repository. Though repositories are in operation, their businesses are at a very nascent stage right now. Maybe an insurance repository needs to be developed which would be a single point contact to provide details of all policy holders at a single point.
Once the information about a customer is made centrally accessible through a repository, either for the continuation or surrender of a policy, the terms and charges for switching from one insurer to another can be mutually decided by the two concerned insurers, depending on the period for which the customer has already paid his premium.
There has been no official confirmation or denial of the story by IRDAI as yet. However, according to sources, the regulator has denied that any such discussions have taken place.