Insurance Companies Are Now a Part of RBI's Account Aggregator System

Nov 24, 2022
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The Insurance Regulatory and Development Authority of India (IRDAI), in its recent move, has given its go-ahead to insurance companies to become a part of the Reserve Bank of India's (RBI's) Account Aggregator (AA) system.

The circular provides guidelines on how the life insurance, general insurance, and health insurance companies can share data with the Account Aggregators, who are basically Non-Banking Financial Companies (NBFCs) that retrieve financial information from entities to provide all savings and investment data in one place. Once the Account Aggregator system is fully functional, the investors can register on the platform and get their bank account, mutual fund, insurance, Public Provident Fund (PPF), PF, and other financial data in one place.

What is an Account Aggregator?

Currently, the financial profile of an individual is spread over multiple interfaces, such as bank accounts, mutual funds, insurance, stocks, government bonds, Exchange-Traded Funds (ETFs), PPFs, etc., which makes it difficult to keep track of it all.

The Account Aggregator system facilitates financial entities to share customer information across various financial services. The information can be shared after obtaining consent from users. The Account Aggregators are not permitted to undertake any other business than the business of account aggregation.

As per RBI guidelines, "Account Aggregators enable structured financial data sharing from Financial Information Providers (FIPs) to Financial Information Users (FIUs).

Insurance Companies Are Now a Part of RBI's Account Aggregator System
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Why do insurance companies need to be a part of RBI's Account Aggregator system?

The motive of insurance is to cover the financial loss that occurred due to an unfortunate insurable eventuality. Hence, there is a limit on the insurance cover you may opt for. For example, life insurance aims at providing financial protection to the family against the loss of income due to an untimely demise of a breadwinner. So, the maximum amount of life insurance cover a person can get depends on his/her earning level and the remaining working life. Similarly, general insurance aims to cover the expenses arising out of the repair or replacement of an insured property due to the occurrence of an insurable event. So, the maximum insurance cover should not be more than the actual expense of repair or replacement of the property/ part of property.

So, the motive of buying an insurance policy is not to gain, but to cover the losses that can arise due to an unfortunate event. A person can take insurance cover only up to a certain limit, which depends on several factors. Hence, to make sure a person does not opt for an excess cover, at the time of buying an insurance policy, he/she has to reveal all the existing insurance details taken from the same as well as other insurers. The disclosure is applicable for all types - life insurance, general insurance, and health insurance. However, many individuals ignore it and avoid providing the existing insurance details to get maximum insurance cover or to merely save the time of filing out the insurance application form. The intention behind hiding such crucial information could also be unlawful.

However, participation of insurance in the RBI's Account Aggregator will ensure that all the insurance-related data is available in one place and it will eliminate the chances of insured individuals hiding or suppressing such information. Moreover, it will help the insurance companies to assess the sum assured limit of the applicants and their premium payment capacity.

In a circular dated November 15, 2022, the insurance regulator has provided guidelines on how insurance companies can share insurance-related data with Account Aggregators. As a result, these Account Aggregators who are basically NBFCs will retrieve the information from various insurance companies and other financial institutions to provide all the savings and investment data in one place. The framework for the RBI-registered Account Aggregators, who are authorised entities to collect financial information from various entities, is already instituted by the central bank.

How secure is the data collection and should you worry about data privacy?

In the Account Aggregator system, data collection and data sharing are done electronically. It not only avoids unnecessary paperwork but also eliminates the chances of human errors. Account Aggregators are regulated by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA).

The entities that participated in the Account Aggregator system share and receive information through Application Programming Interface (API). Sharing of customers' financial information is based on the prior consent of the customer. Account Aggregators maintain a log of consent given by users. Furthermore, the customers can manage consent at all times and can choose to opt out of the programme.

Account Aggregators are not permitted to store any customer data and must simply aid the exchange of data. The information can only be shared with regulated entities. The IRDAI has advised insurers to ensure data protection while sharing information with Account Aggregators. It also mandates an audit of the internal systems and processes at least once in two years by external auditors.

In the circular, the insurance regulator said, "There shall be adequate safeguards built in IT systems of Financial Information Providers (FIPs) in the insurance sector to ensure that it is protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data."

 

The guidelines also state that insurance companies will have to prominently display the names of the aggregators with whom they share data and have to abide by the code of conduct applicable to them including redressal of grievance of the customer before sharing any data with Account Aggregators.

So, as a customer, you can rest assured about the safety and security of your personal and financial data and need not worry about data privacy.

To conclude:

With the integration of insurance companies with the RBI's Account Aggregator system, customers will no longer be able to hide insurance-related data, such as existing insurance policies and sum assured from the insurance companies in order to opt for more insurance cover than what they are eligible for. The data collection and sharing is done electronically that involves layers of security to ensure the customers' data privacy.

 

Warm Regards,
Ketki Jadhav
Content Writer



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