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Key IRDAI Regulations That Changed the Face Of the Term Insurance Industry

Death due to COVID-19 covered under term policy, e-KYC, and buying term policy using OTP are some of the changes in the term insurance industry. Read ahead to know more about them.

  • 2,717 Views | Updated on: May 10, 2024

There was a certain status quo in place before the year 2020, which had been going on for quite a while. Everything was followed via a particular procedure even within the finance and insurance sectors. But then the COVID-19 pandemic stuck in early 2020, and everything you knew changed forever.

Key takeaways

  • If a policyholder dies due to COVID-19, the beneficiary has full right to claim the policy.
  • The IRDAI allowed for the issuance of term plans based on a tele-medical check-up.
  • Policy buyers only had to submit their Aadhaar numbers, and the authentication for e-KYC would be done using the same.
  • IRDAI allowed policy buyers to authenticate details of the policy using an OTP system.

You could say that even in these unfortunate circumstances, one change that was for the good of society was the digitization of services. Since no one could step out and physically perform tasks, the onus was on the service providers to make their services available on a digital platform.

The insurance sector in India took a similar path when the Insurance Regulatory and Development Authority of India brought up regulations to make it safer and easier for policy buyers to gain access to insurance products using electronic means. They also made certain clarifications regarding policy coverage with respect to the COVID-19 situation.

Let us look at some IRDAI regulations that, more or less, changed the face of the term insurance industry by going completely towards a digital route.

Death Due To COVID-19 Covered Under Term Policy

When the pandemic struck, there was some confusion regarding term policy coverage with respect to death due to COVID-19. Since this was a new disease, policyholders were confused about whether the beneficiary would get the assured sum if death occurred due to complications from COVID-19. The IRDAI immediately came out and clarified that death due to COVID-19 would, in fact, be covered by existing term insurance policies.

This means that if a policyholder dies due to COVID-19, the beneficiary has full right to claim the policy. No insurer can reject a term policy claim citing death due to COVID-19 as a reason for rejection.

Issuing Term Insurance Via Telemedicine

Previously, an important step of the term insurance procedure was the medical test that every policy buyer had to undergo to detect critical illnesses that may impact the policy. But when the pandemic began, people were reluctant to step out of their homes and visit medical centers for fear of contracting the virus. The IRDAI again stepped in and allowed for the issuance of term plans based on a tele-medical check-up.

This meant that policy buyers could get their medical check-ups done via video and tele consultations from their homes.

e-KYC

The IRDAI also brought in document verification using a completely paperless system for term insurance. Now, policy buyers only had to submit their Aadhaar numbers, and the authentication for e-KYC would be done using the same. This would mean that physical copies of Address and ID proof will no longer be required.

Buying Term Policy Using OTP

Before Covid-19, a face-to-face meeting was necessary to agree to the terms and conditions of a term plan. However, during the pandemic, to reduce human contact, the IRDAI allowed policy buyers to authenticate details of the policy using an OTP system. The insurers could then send links to the buyers, and the buyers could input the OTP to authenticate. Essentially, OTPs replaced traditional signatures in this regard.

The IRDAI, thus, really smoothened the process of insurance buying in those tough times. With these regulations in place, policy buyers can easily and conveniently purchase policies without fear.

Guidelines on Handling of Claims Reported Under Coronavirus by IRDAI

As per the contents of this circular, the IRDA (Insurance Regulatory and Development Authority) issued directives to insurance companies to expedite the processing of COVID-19-related hospitalization claims.

Insurance providers were instructed to develop insurance products that could help ease the financial burden associated with COVID-19 treatment and cater to the healthcare needs of different segments of the population.

IRDAI Circular on ‘COVID-19 Global Pandemic Related Instructions to Life Insurers’

In accordance with these guidelines, the IRDAI has addressed four key issues:

  • Operational procedures of insurance offices.
  • Extending the grace period for premium payments.
  • Handling of insurance claims.
  • Submission of periodic reports.

Regarding the closure of offices, the IRDAI instructed life insurance providers to inform policyholders through various channels such as email, SMS, press releases, etc., in addition to notices posted at branch offices. Life insurers were further directed to display a list of non-operational offices, alternative arrangements for serving policyholders, and emergency contact information. Details on COVID-19 death claims and specific information regarding the eligibility of claims under health insurance policies on their websites.

Additionally, the IRDAI granted an additional one-month grace period for premium payments due in March 2020 for all life insurance policies. Insurers were also mandated to maintain a separate record of COVID-19-related claims for future reporting to the IRDAI upon request. To enhance monitoring of the COVID-19 situation, the IRDAI instructed insurers to submit reports detailing the status of partially or fully closed offices and other measures taken every two weeks.

COVID-19 Related Instructions From IRDAI

The IRDAI (Insurance Regulatory and Development Authority of India) encouraged insurance companies to maintain minimal on-site staffing levels, ensuring claim processing, policy renewals, hospitalization, authorizations, and similar activities continue uninterrupted.

Furthermore, insurers were also required to display helpline numbers on their websites – one for policyholders and another for intermediaries and agents. Additionally, also instructed to formulate comprehensive business continuity plans that address various aspects like operational processes, reporting mechanisms, and transactions to manage the situation seamlessly.

Ministry of Finance Notifications/April 3, 2020 And April 16, 2020 IRDAI Circulars

Policyholders with third-party motor insurance and health insurance policies set to renew between March 25, 2020, and April 14, 2020, were granted an extension to pay their premiums until April 21, 2020. This extension was put in place to guarantee the uninterrupted coverage of these policies starting from the renewal date.

The IRDA further emphasized that insurance companies must continue to provide coverage even in situations where renewal premiums were outstanding and had not been paid.

April 4, 2020-IRDAI Circular

As per the information, the IRDAI granted an additional 30-day grace period for all life insurance premium payments scheduled for March and April 2020. In order to safeguard policyholders of top life insurance plans amidst market volatility, the IRDAI mandated insurers to provide policyholders with a one-time opportunity to opt for settlements, as outlined in Regulation 25 of IRDAI, for policies maturing by May 31, 2020.

April 8, 2020-IRDAI Circular

The Central Bank, RBI, issued directives to alleviate the challenges faced by borrowers in repaying their term loans. Consequently, the IRDAI (Insurance Regulatory and Development Authority of India) authorized insurance providers to offer a three-month moratorium for instalment payments that were originally due between March 1, 2020, and May 30, 2020. As a result, the repayment timetable for term loans was extended by three months.

April 16, 2020- Circular Of IRDAI

The IRDAI has consistently emphasized the mandatory requirement of medical insurance for all employees working in establishments that remain operational during a nationwide lockdown.

April 18, 2020- Circular Of IRDAI

To alleviate the strain on healthcare infrastructure, the IRDAI mandated that insurers promptly communicate their decisions regarding approving cashless treatments to network provider hospitals. This communication must occur within a maximum of 2 hours after receiving the authorization request, which includes the last necessary request from the hospital. This communication can be made by either the insurer or a Third Party Administrator (TPA).

Rules for General Issuers on Product Design and Pricing

The IRDAI has introduced preliminary directives to establish a structured framework for insurance companies to adhere to in product design and pricing. The regulatory authority emphasizes that when developing insurance products, the primary focus should be on safeguarding the interests and affordability of policyholders while also adapting to changing needs and risk coverage. Furthermore, the regulator has categorized general insurance products as retail or commercial, depending on the purchaser and/or the sum insured.

According to the regulatory body, feasibility plays a pivotal role in determining the price of a product. Insurers must consider risk exposure, claims history, operational costs, reinsurance, solvency requirements, and a reasonable surplus. Even additional features or add-ons must be priced to ensure the sustainability of both the core product and the supplementary components.

More Health Products Under the Use-and-File Procedure

The IRDAI has granted general and health insurance companies permission to introduce four additional categories of individual products, add-ons, and riders for health policies through the use-and-file procedure. These new categories encompass personal accident insurance, overseas travel insurance, domestic travel insurance, and benefit-based health insurance products.

Per the use-and-file guidelines, insurers are authorized to market specific products without the need for prior approval from the IRDAI under particular conditions. According to the IRDAI, regarding personal accident, domestic, and overseas travel products, the ‘use-and-file’ approach is only permissible when the coverage provided in both the base policies and any supplementary covers or riders is contingent upon accidents and/or relevant travel. These updated regulations will apply to products submitted from April 1, 2021.

Final Thoughts

IRDAI has played a crucial role in shaping the term insurance industry in India by implementing these key regulations. These measures have not only safeguarded the interests of policyholders but have also made term insurance more accessible and transparent. As the term insurance sector continues to evolve, staying updated with the latest IRDAI regulations is essential to make well-informed decisions when purchasing a term insurance policy.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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