Has digitalization really helped in the protection of Insurance policyholders?

Challenges to protecting the interest of Policyholders in digital form filling?

Insurance is an offer and acceptance contract that works on the principle of business solicitation through an intermediary as per the process below :

1. Agent/Broker / POS approach a prospect, tell benefits of insurance and solicit business after understanding need of prospect and then help to select a right solution.
2. Prospect need to fill a proposal form under the guidance of intermediary and this form is sent to underwriters of Insurance Company.  Earlier this form was filled by hand along with signatures of prospect which confirms that prospect has understood and given all details with honesty. Insurance is a contract of utmost good faith where underwriters would take a decision on the basis of declarations made by prospects. Today 99% of forms are filled digitally and OTP has replaced signatures.
3. Underwriters assess the risk on the basis of information given in the form and take their decision.
4. The insurer also uses technology to verify all facts through telecalling the customer and ensuring that the sales process was right and no unethical allurement was given.
5. The insurer sends the Policy document and offers 15 days free look period to terminate the contract with a full refund.

But these steps have not been able to curb malpractices and the Industry is suffering from 36th-month persistence of around 40% which means  60% of policyholders feel cheated and terminate the contract after having losses of premium. With technological advancement and the use of artificial intelligence, it was projected that the probability of misselling would reduce.

This had happened during days when the form was filled by hand.  Today, the form is filled digitally and throw more challenges as given below :

1. There is no signature and the form is accepted through OTP. OTP is an acceptance that the prospect has checked the form and verified it. So it is advisable to all that they should not share OTP unless they have checked all details of the form. Mostly, prospects presume that OTP is their agreement to buy and not agree with the contents of the form. It is the duty of the agent to persuade people to check the form but an intermediary with the wrong motive would avoid sharing this important information.
2. Moreover, the signature was important for any service request but OTP creates a problem because all service request has to be done online. Many old people are not comfortable and change their email frequently, This can also cause many other problems where nominees can be changed without signature and without consent. Hence, it is advisable that email id and passwords are not shared to avoid any unintended service requests. One should also visit website of the insurer to verify all facts given in the policy.
3. Digital form filling is a problem with prospects who are illiterate and do not understand English. Earlier, there was a vernacular declaration that certified that all product features have been explained in the language of the prospect. This vernacular declaration was done by someone not related to the intermediary. Declarer would also certify and sign to confirm that all features were explained. Today, there is only a certification through the same OTP that the product was explained. It does not identify that who explained the product. In India, how many people really understand English? This throws many challenges to customers when the insured says that product details were not explained. Hence, it is advised to intermediary as well as prospect that they should take a certificate that product features were explained and declarer should give their name, address, and mobile number. 
4. Digital form filling and payment systems also give the scope of third-party payment. The earlier payment was made by cheque of proposer having name and signature which use to alarm insurer curbing the chance of third party payment. This opens fear of moral and economic hazards. It is advised to all intermediaries and prospects that a contract can be called invalid in case of third-party payment thus defeating the purpose of insurance.
5. In the case of Form 2, where proposer and insured are different, chances of misselling are increased because intermediary can do insurance without seeing life to be insured. Earlier, the form need the signature of the proposer and insured, if over age 18. Today, one can trap an old person with false promises by making children as life to be insured. In such cases, children are not aware of insurance and show their dissatisfaction. It is advised to all prospects that they should take consent of life insured and take the letter that they would continue with insurance in case of death of proposer.

The intermediary was considered as field underwriter and use to sign that they know the prospect and certify about their health. This was a piece of evidence which use to help in the case of early death. But under the digital form, the role of the intermediary is limited thus opening gates of misselling through distributors with ill motives ( Buy insurance to get eligible for loan – Mis-selling of the 1st order )

Though digitization is necessary for the simplicity and expansion of Insurance companies at the same time they also need to take steps to protect the interests of Policyholders.

The public also must be more vigilant and follow the guidelines for their own protection.

Shailesh Kumar

Insurance Samadhan