As per sources, the Life Insurance Corporation (LIC) is considering to start its own depository for insurance dematerialisation.

Sources said that “LIC’s insurance depository could be a separate subsidiary. This would reduce demat expense for LIC. They would also earn income via dematerialising insurance policies for other insurers”.

Dematerialisation Mandated by IRDAI

The timeline for dematerialisation is decided by the Insurance Regulatory and Development Authority of India (IRDAI) and the company is planning to ask an extension in the same for new and old insurance policies.

It is by December 2022 that the insurance regulator has mandated the dematerialisation of new insurance policies. For the existing/old policies, the insurance regulator has given a deadline of December 2023.

When it comes to the expense incurred on dematerialization of policies, the market share of total insurance policies in the industry, LIC demands around 75 percent market share. Each year, LIC issues two crore policies.

As we speak today, there are 22 crore policies which are active and existing belonging to LIC in the industry. So, dematerialization of policies through a different subsidiary, let’s say a CAMS or National Securities Depository Limited (NSDL), Central Depository Services (CDSL) would mean incurring around Rs 1,200 crore to Rs 1,400 crore.

But having its own subsidiary would mean that LIC’s money will be coming to itself again, not jus that but also the dematerialization business from other life insurance companies and other insurance companies would be an additional stream.

What is Dematerialisation? Why The Hassle?

The process of dematerialization means converting physical policy document into a modifiable online object.

This also means that there will no need to indulge in paperwork at time of renewing the policy.

This move is aimed to reduce the transaction costs and to ensure swift modifications in policies.

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