Legality of online Insurance sale

LI Research

Less than a decade ago, buying and selling products online was quite unthinkable but with the advent of digitalization, digital platforms have become vogue and people tend to move towards e-tailing and moving further from retailing. Online shopping is not just restrained to fashion, electronics, or travel, in contemporary times insurance has also started the path of online sales.

There were times when people were pushed by insurance brokers into buying insurance but with increasing risk factors and awareness, customers now tend to choose appropriate insurance for life, health, education, vehicles safeguarding them from all kinds of risks.

In our daily life insurance policy plays a big role because it ranges from life, health, travel, technologies, etc. If you are a 90s born, we probably know insurance agents coming home and trying to convince our parents on buying insurance. It has changed a lot that we understand with millions of internet users in our nation.

The idea of buying insurance is profitable, fast, and effective and there is so much interference from brokers or intermediaries. Customers are few clicks away from buying insurance policies and such policies can be tailor-made as per the requirement and comfort of the customer.

What is online insurance?

Customers demand tailor-made insurance policies without going through the trouble of standing in queues and to save the commission amount which they have to pay to brokers.

With the increase in demands, it has become necessary for insurance companies to shift to an online mode of selling insurance where customers can buy insurance with just a click. The Covid-19 crisis has also accelerated the need for digitization and forced many sectors to shift to online platforms including insurance.

“E-Insurance companies operate on a direct-to-consumer model via online channels to sell policies and service customers without physical agent and broker led setups coming into the fray.

Using technology, we are able to transform something that’s long and tedious to something that’s quick and easy. Customers can buy or claim or renew a policy on the website, the process is as easy as shopping online through any eCommerce platform,” says Biresh Giri, Appointed Actuary, Head of Product Development & CRO, at Acko General Insurance.^[1]

A majority of insurance companies are driven by offline channels like brokers, baking agents, and intermediaries but the shift to online platforms and increasing demand of customers has compelled them to choose e-methods.

The online insurance industry is a fast-growing space and more than 50-60% of the business is contributed by web aggregators. Only 30% of the Insurance buyers in India are completely non-digitized and it is fast decreasing, according to the BCG analysis. Digitalization of the Insurance Industry not only accelerates growth but also lowers costs. ^{^[2]}

Why buy insurance online?

Companies selling insurance online provide opportunities to compare various insurance plans. This way the customer can make an informed decision and buy the right plan that fulfils his requirement. The online comparison includes comparing policy benefits, features, exclusions, premiums, etc.

In this busy era, people postpone buying insurance because of tedious paperwork and the long process of getting insurance. Online insurance makes this process fast and hassle-free with less paperwork making it time-efficient. In the case of online purchases, customers can make purchases from the comfort of their homes at any convenient time.

Also buying insurance online makes it almost 50% cheaper because it is bought directly from the insurer and there is no expense on brokers or intermediaries and companies also provide policies at lower rates.

There is also overall transparency because each and everything about the product is online. Beginning from the features of the policy to the customer experience and details of the insurer. There is nothing that the insurer can hide.

Guidelines on insurance e-commerce

Insurance Regulatory and Development Authority of India (IRDAI) has issued guidelines on insurance e-commerce, thus paving the way for electronic platforms that will market as well as service insurance products.

The guidelines, IRDAI said, are being issued “to promote e-commerce in insurance space, which is expected to lower the cost of transacting insurance business and bring higher efficiencies and greater reach.” ^{^[3]}

Any insurers or intermediaries, like web aggregators or insurance brokers—who have a website—will now have to get an ISNP license.

“The idea of these guidelines is to standardize e-commerce rules across different entities selling insurance online. Anybody who now wants to sell insurance on a digital platform will need to set up an insurance self-network platform (ISNP) and follow the rules for it,” said Yashish Dahiya, co-founder, Policybazaar.com. ^[4]

Insurers, brokers, agents, intermediaries, or other entities recognized by IRDAI can sell policies on the online platform.

If any unregistered participant is enrolled by the applicant’s ISNP, then it will be viewed as a violation. Also, applicants are not allowed to redirect internet traffic references from other market participants.

In terms of pricing, the rules state that insurers can offer a discount on a product when it is sold through its ISNP. However, the differential price for products offered on the digital platform will remain the same, whether it’s offered through the insurer or the distributor.

The rules also state that no cashback, promotional incentives, or payments will be allowed by payment gateway companies. As per the rules, apart from allowing electronic payments through credit cards, debit cards, net banking, and e-wallets, payment can also be done through cheque and demand draft.

Even cash is acceptable if the insurer can give an immediate acknowledgment on either the policyholder’s email address or mobile phone number, or having received the premium.

The guidelines make an e-insurance account mandatory. An e-insurance account lets the customer hold policy in a digital format. As per the notification, the creation of an e-insurance account will have to be done within 15 days of selling the insurance policy on the applicant’s ISNP.

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