Why all life insurance policies should be issued in paperless format

When S Marakatham’s husband passed away in Tiruchendur, Tamil Nadu, she didn’t even have a clue about his three life insurance policies, cumulatively worth Rs 20 lakh. When the premium was due, she got a call from the company officials who were then informed that the policyholder had died. While one would presume that Marakatham would have received the claim amount.

The process wasn’t so simple!

Due to being unaware of an insurance being purchased, she was not able to locate the original policy documents. The insurance company refused to pay the death claim unless Marakatham submitted the documents. By this time, 30 days had passed since her husband’s death.

Insurance rules stipulate that an insurance claim has to be filed within 90 days of the policyholder’s death with the necessary documents like death certificate, age proof, post-mortem report (if any) and the original insurance policy.

If the policy documents are lost, the insurance company and the agent have to be informed. A few insurers also mandate that a police complaint be filed with details of how the policy was lost. Newspaper advertisements in English and a local language also need to be placed with details of the policy.

After following all these procedures, Marakatham was able to get a duplicate copy of the policy document and then make the death claim.

Insurers say that misplacement of life insurance policy documents are one of the biggest concerns faced by the public. Male members of families often don’t inform their wife, children about the life insurance policies purchased by them. The result is that claims are delayed when policy documents are not found.

Some insurers also label the policy documents in large font sizes with the words ‘Insurance Policy’ when these papers are sent by post. This is to ensure that family members are able to locate the documents easily during claims filing. But this may also not be adequate.

Due to the Coronavirus pandemic and the risk of infection, Insurance Regulatory and Development Authority of India (IRDAI) has given special permission to issue term policies in digital format. This exemption will be valid till December 31.

However, a better option would be to allow the issue of paperless insurance policies from now on. The general insurance industry has adapted better to the digital wave by issuing health and motor policies in a digital format. It is time for life insurers to make that shift too.

Especially in the wake of COVID-19, it is best to minimise contact by moving from exchange of paper policies during claims settlement to paperless documents.

The e-insurance service already exists. This service was launched in 2013 by former Finance Minister P Chidambaram. It is estimated that insurers could save almost Rs 100 crore annually from issuing policies digitally.

Every year, close to 29 million life insurance policies are issued to individual and group customers. Digitising these policies into paperless formats would be an immediate cost saving for insurers.

One set of insurers argue that it is easier to print out paper policies and issue rather than making a digital policy. Another set of insurers cite customer reluctance to switch to paperless policies.

But, customers can be made aware of the advantages. At a later stage, if a small fee is charged for sending out paper policies more number of policyholders would opt for e-insurance policies.

Policyholders should be explained in detail about the benefits of holding a digital insurance policy. Those without smartphones could be sent scanned copies of the policy through an MMS. During claims settlement, if the policy documents cannot be retrieved the nominee identity could be confirmed to fetch the papers.