Dematerialising LIC’s policies- It can have implications for small policy holders



Smt Nirmala Sitharaman

Union Finance Minister

Dear Smt Sitharaman,

I have come across a report today ( that the Insurance Regulatory Authority of India (IRDAI) has proposed to “dematerialise” all insurance policies, including life insurance policies. As a follow up measure, LIC seems to be considering to set up its own repository, in view of the large number of life policies that exist today and the volume of new life policies issued annually.

While digitising paper policies would certainly show the government and its agencies to be technically savvy, the idea in itself betrays the wide disconnect that exists between those in charge of governance and the majority of those who are at the receiving end.

The insurance regulator seems to ignore the fact that the majority of the life policies in India are those that belong to low-income households, located far and wide, in rural and remote areas, who are on the wrong side of the digital divide, which cuts across the economy today. Such policy holders have been able to insure their lives at affordable premiums, as a result of the relentless promotional effort put in by the Life Insurance Corporation (LIC) over more than sixty years of its existence. Many of those households will find it difficult either to dematerialise their policies or conduct day-to-day transactions in the demat mode. If the LIC were to make it mandatory for those households to demat their policies, they will be driven into the clutches of intermediaries, who will then have access to their personal data and who can also take undue advantage of their policies in one way or the other. Even if the LIC were to do some hand holding in their case, it would still exclude the majority of them from dematerialising their policies.

Already, the government and the LIC have pushed all those policyholders into a disadvantageous position by insisting on their creating demat accounts to be eligible for buying equity shares when the Corporation floated its IPO in May, 2022. As a result, most small policyholders, who constitute the bulk of LIC’s insurance business, were either deprived of an opportunity to become equity shareholders or were pushed into the waiting hands of brokers who took undue advantage as benami investors through the special window of opportunity offered to the policyholders. Apparently, the LIC could not reach out to them and provide the necessary hand-holding assistance, as a result of which, their interests suffered. As if such injustice was not enough, the LIC, actively prompted by your Ministry, diverted the policyholders’ funds into the account of the equity shareholders for no justifiable reason, not for benefitting its own policyholders who contributed to the phenomenal growth of the Corporation over the years, but only to allow speculative stock market investors to profiteer.

IRDAI’s latest diktat that insurance policies should be dematerialised may be viewed as a welcome reform measure by the big-ticket policy holders who can readily access the internet but it will adversely affect the interests of millions of small policyholders who constitute LIC’s lifeline. Such a step to demat the policies will adversely affect the interests of the LIC itself by affecting the majority of its policy holders. In the long run, it will force the LIC to move away from its statutory responsibility of providing the much needed social security cover for millions of disadvantaged households. This runs counter to the assurances given by the government to the Parliament, when LIC was set up in the first instance.

Apparently, the move in favour of dematerialising insurance policies is prompted more in the interest of a small segment of investors who speculate in the stock market than from the point of view of promoting the welfare of a large number of households whose hard earned savings have enabled the Corporation to grow into a leadership role in insurance business.

It is distressing to find the government blissfully ignoring the welfare obligation enjoined on it by the Directive Principles in the Constitution and adopting policies that run counter to them.

IRDAI’s Mission, as displayed prominently at its website, states that its aim is to “protect the interests of and secure fair treatment to policyholders”. Since the majority of the life insurers in India belong to the low-income sections of the society, IRDIA’s mission is to protect their interests and ensure that no injustice is meted out to them.

I suggest that the government and the insurance regulator keep this in view while laying down policies in the future.


Yours sincerely,

E A S Sarma

Former Secretary to Government of India



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