IRDAI is examining a proposal that may allow customers, both retail and corporate, to take loans for buying an insurance and spread premium payment over longer duration. Known as premium financing in insurance parlance, at present the structure is not available in the country.
A senior executive aware of the developments said the move is aimed at increasing insurance penetration, retention, reducing protection gap and also creating new avenues of consumer and corporate financing.
“It is being looked at. Necessary amendments will be required in the Insurance Act, for which the government also needs to be on board,” he added.
Under premium financing, broker or insurer will offer the retail customer an option to spread the cost of insurance over a period of instalments rather than to pay a single premium in one lump sum before the policy commences.
“The finance provider will pay the loan amount to the insurer to enable them to issue the insurance. Repayments are then collected directly from retail customer by monthly instalments through direct debit payments,” said another executive, adding this will assist in renewal retention as the policy holder is not faced with the challenge of paying a full year premium in a single payment.
In case of default, the insurance company refunds the balance of the loan to financier on a pro-rata basis.
“An unsecured personal loan for a push product has a lot of limitations,” said Tim Mathews, chief executive officer, Finsall Resources, adding that premium financing makes insurance products affordable for the insured and also increases the insurance penetration.