The Insurance Regulatory & Development Authority of India (IRDA) on June 7, 2016 released the Draft Insurance Regulatory & Development Authority of India (Insurance E-commerce) Regulations, 2016. As a progressive step, the Regulations recognise the online medium as a platform to sell insurance policies. I guess the e-commerce bug has finally caught up with the insurance regulator.
The Regulations, now make 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.
Aside from this, the Regulations also clarify operational issues like using physical signatures in an online sale with the need for physical signatures having been done away with. Physical signatures have been replaced by digital signatures or other single factor authentication such as One Time Password, PAN Card & Date of birth authentication etc.
The self-professed motive, per the exposure draft, is to facilitate the promotion of e-commerce in the insurance sector so as to lower the cost of transacting insurance business. The IRDA views e-commerce as an effective medium to increase insurance penetration and ensure financial inclusion in a cost-efficient manner. This will undoubtedly take time and there is unlikely to be any instant nirvana! However, two aspects of the Regulations do certainly merit further scrutiny if the Regulations are to succeed in this endeavour .
Firstly, poor drafting has resulted in the Regulations presenting conflicting interpretations as to who precisely can set up an insurance self-network platform. Regulation 2 (d) defines insurance self-network platform as those set up by those ‘participants’ as defined in Regulation 2(e), with the exception of insurance agents. However, Regulation 3, states that only the ‘applicant’ desiring to provide an insurance self-network platform will make an application in the appropriate form with appropriate fees. ‘Applicant’ has been defined in Regulation 2 (b) of the Regulations as ‘a registered insurer or an insurance intermediary’. ‘Participants’ on the other hand have been defined in Regulation 2 (e) as including insurers, insurance intermediaries and any other person recognised by the IRDA.
Thus, through a joint reading of Regulation 3 with Regulation 2 (b) only registered insurers and insurance intermediaries may apply. A joint reading of Regulation 2(d) and Regulation 2 (e) however indicates that any other person recognised by the IRDA will also be able to set up such a platform.
The IRDA per the exposed draft seems to indicate that the latter interpretation is the correct reading i.e. any other entity approved by the IRDA may also set up such a platform. If this it to be the case, two points must be noted. First, that appropriate changes must be introduced in Regulation 3 amongst others in order to ensure that such confusion may not arise. Second, the IRDA would have to outline the procedure for how any other entity may approach it for such an approval and what might be the tentative guidelines for the same.
The second issue that arises with respect to the Regulations is that the IRDA seems to be unclear on precisely how neutral the insurance platforms would be required to be. In one part, the Regulations require that the platform while displaying various products, cannot favour the products of any one insurer. Thereafter however, the Regulations provide that the platform may display online customer reviews and seller ratings. Now this appears to be contradictory, in so far as, high seller ratings would effectively result in favouring the product of one insurer over that of another.
All in all however, this is a positive and forward looking move by the regulator which will in all likelihood expand the reach of insurance products to customers. One can hope that the final legislation clarifies the doubts to avoid any misunderstanding and leads to better availability of insurance products to customers in general.
(With contribution from Sanjeevi, associate, J Sagar Associates)
The author is a partner, J Sagar Associates, Advocates and Solicitors, Views are personal