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Participation of Insurance Companies in Account Aggregator Framework

Ankit Mishra

| Updated: Nov 24, 2022 | Category: NBFC

Participation of Insurance Companies in Account Aggregator Framework

IRDAI, on 14th November 2022, rolled out a new circular for all the Life Insurers, General Insurers, Health Insurers and Insurance Repositories operating in the country. Circular no. IRDAI/IID/CIR/MISC/229/11/2022 emphasised on the participation of the insurance companies in the Account Aggregator framework of the Reserve Bank of India. This circular will come into effect immediately after rolling out the notification on 14th November 2022. This move was anticipated for a very long time by experts to extend the service of account aggregators in the insurance business. In this piece of writing, we will discuss all the relevant information with regard to the latest circular of the IRDAI concerning participation in the Account aggregator framework for insurance companies.   

What is an Account Aggregator?

An Account Aggregator is a Non-Banking Financial Company (NBFC) that has been licensed and regulated by the Reserve Bank of India, which provides the service of transferring sensitive client data from one entity to another. AA set-up helps the customers and banking or other entities to provide a seamless exchange of client information in a secure atmosphere with the due consent of the customer. The two main entities in this framework are Financial Information Providers(FIPs) and Financial Information Users (FIUs). The account aggregator setup acts as a communication channel between these two entities for better and more efficient client data management.

Operational algorithm of Account Aggregators

The Account Aggregator setup usually has the following working algorithm:

  1. The FIU generally requests the aggregator to seek data on a particular individual or entity.
  2. The Account aggregator framework carries forward the request to the FIP in its system, which may have the entity’s relevant information.
  3. The FIP, via an OTP or any other verification method, intimates the customer/entity about the request raised by the AA.
  4. If the customer/entity gives their consent to the exchange of information, the information is only passed to the AA in an encrypted format.
  5. The AA setup then passes the information received from the FIP to the FIU.

The Reserve Bank of India, through its Master Direction on Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions, 2016, dated 2nd September 2016, has provided a detailed framework for the registration and operation of NBFC Account Aggregators in India.

Inclusion of Insurance Companies in the Account Aggregator Framework

Through this circular, the IDRAI[1] has allowed the insurance companies to enter into the Account Aggregator framework for a seamless flow of data however following are the pointers mentioned in the circular:

  • The Circular further clarifies that the definition of FIP in para 3(1)(xi) of the Master Circular includes the insurance companies as well, and the FIPs of the insurance sector will share the financial information with the customers and FIUs. This information-sharing by the insurance company should be in accordance with Clause 7 of the Account Aggregator framework of the RBI.
  • The circular also mandates the insurance company to carry out a contractual framework with the Account Aggregators and should specifically mention the following;
    • Rights and Obligations of each party to the transaction
    • Al the modalities of Dispute Resolution Mechanism as prescribed by the IRDA and RBI from time to time.

Technical Specification for the FIPs

  • The FIPs in the insurance sector must adopt all the technical specifications published by Reserve Bank Information Private Limited (ReBIT), which is updated from time to time for the betterment of the system. The information Technology framework, as established, should be followed to secure the data flow to the Account Aggregator. The technology should always be scalable as per the requirement set by the regulatory requirement put forth from time to time.
  • The Reserve Bank of India, for the protection of sensitive customer data and making a holistic transfer mechanism of the data, may, from time to tie, update the requirements of the technology.
  • The technology structure should be built with safeguards and security systems so that the customer data is protected against unauthorised access, alteration, destruction, dissemination or disclosure of the data.
  • These technical specifications are made for the betterment of the transaction mechanism so that sensitive customer data is secure and safe.

Code of Conduct and Due Diligence

The circular further clarifies the safeguards and code of conduct that the FIPs in the insurance business.

  • The FIPs in the Insurance sector must abide by the code of conduct as specified by the regulations/Circular/Guidelines specified by the RBI or the IRDAI from time to time.
  • The redressal of the customer’s grievance should be the top priority of the Insurance companies, which should be in accordance with the standards set by the IRDAI.
  • The insurance companies acting as FIPs should always comply with all the regulatory provisions under the Insurance Act 1938 and all the guidelines, Circulars and Directions that are being put forth from time to time.
  • It is also important for the insurance companies that all the compliance under the RBI AA regulations are also fulfilled from time to time.   
  • The Financial Information providers should also disclose prominently on their official websites the names of Account Aggregators through which they share the information. This has been mandated to curb the situation of any discrepancy with customer data. It provides reasonable protection to the customers and decreases the chance of fraud for the customers.

Benefits of Insurance companies in Account Aggregator framework

Following are some of the benefits that the customers and Financial Information Users may have with this latest circular

  • It will allow the entities to share the data amongst different industries and facilitate an effective mechanism for the transfer of financial data
  • Individuals and companies can register with any FIP and get their bank account, PF investment, PPF, Insurance and all the financial data in one place.
  • The financial data can be utilised by different stakeholders at the current time without dealing with all the paperwork.
  • It helps in establishing a repository of financial information that can be utilised for speedy approvals of loans and other forms of credit.
  • This framework allows insurance companies to interact with possible clients and expand their market.

Conclusion

The current circular by the IRDAI is a welcome move as it will allow the expansion of the account aggregator framework in the country. This regulatory change will bring much-needed efficiency in availing financial services by customers all over the country. It is also imperative to mention here that the current system has made availing of credit much easier than earlier. This will help the entities in securing credit at an unprecedented rate which will help entrepreneurs/individuals across the country. The inclusion of insurance companies into the Account Aggregator framework will be a catalyst in India’s goal of achieving success in the facilitation and growth of the financial market of India.

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Read Our Article: Benefits of Account Aggregator Framework to Customers

Ankit Mishra

An Advocate by profession, Ankit holds ample experience in curating engaging and informative content relating to the BFSI, Blockchain and Global Expansion domains. He is also well-versed in drafting/vetting documents and holds a keen interest in cyber security laws, taxation, finance and regulatory norms.

Business Plan Consultant


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