A win-win solution for all stakeholders, credit life protection is one of the fastest growing segments in the Indian insurance sector
Unlike the past, Indians no longer shy away from taking loans today. They are willing to borrow money from banks and non-banks for everything from big-ticket purchases like a home and vehicle to less expensive items such as consumer durables and even vacations. In the past five years, for instance, the retail loan books of banks have doubled from INR 19.4 trillion in 2017-18 to INR 40.9 trillion in 2022-23, as per data from a leading ratings agency. This spurt in loans is accompanied by a corresponding increase in risk. For every loan comes with the risk of non-repayment – for both the lender and the borrower. However, this is where credit life insurance can prove to be a boon.
Be it a high-interest personal loan or a big-ticket home loan, a credit life insurance policy can take away the entire stress around the uncertainty of the borrower’s life by not only protecting the family of the insured but also ensuring that the lender’s loan amount is secure. In the case of an unexpected loss of an earning member, credit life insurance can cover the family’s entire debt burden. The insurer not only pays the outstanding amount on the loan to the lender, but in case of a flat cover policy, also hands over the excess after repaying the loan to the designated nominee of the deceased.
Typically, the group credit insurance policy is offered by lenders along with the loan. It is aligned with the loan amount at the outset and the policy premium is inbuilt with the amortisation schedule so that the borrower can seamlessly pay the EMI to repay the loan as well as service the policy. A win-win for all stakeholders, it is not surprising that the credit life segment is growing by leaps and bounds in line with the growth in retail lending across the country. For some insurers, the credit life channel has grown by over ten-fold in the past five years.
Strategic growth
This is only the beginning, however. With retail credit offtake expected to continue rising in India, there is a strategic opportunity for life insurance companies to expand the credit life business for retail loans and also to extend it to other loan segments such as agricultural and MSME loans. A four-pronged structure – or what I call the 4P model comprising Process, People, Product and Promotion — can help insurers tap this expanding segment.
It must be mentioned that the bancassurance channel is a critical partner for this business.
The 4P model
Process: Strong processes are the foundation of a scalable credit life business. This includes both customer-facing and back-end processes. The turnaround time in personal loans, for instance, is extremely short and the lender has a small window to convince the borrower to top up his loan with a credit life insurance policy since these covers are not mandatory – except in the case of education loans above INR 7.5 lakh. The parameters for calculating premium on different types of retail loans – home, education, personal — also vary. A dedicated app that quickly calculates the premium can help improve the attachment or acceptance rate of credit life policies on loans. The app can provide a smooth interface to the insurer’s internal customers (bank officials) as well as external customers (borrowers), right from pre-approval and on-boarding through the customer lifecycle journey.
It is also important for an insurer to align their system with the bank’s loan processing system because it not only provides most of the customer details required for generating a policy but also enables the insurer to easily attach the credit life cover to loans. This allows for smooth scaling up of operations for future growth. In case the bank officer is unable to complete the insurance sale, the integrated system can also send an alert to the insurance team to reach out to the customer directly.
People: A process is only as good as the people running it. Hence, a People First approach is essential for building a robust, growth-oriented culture. This includes training for insurance agents and bank officers on the insurance product as well as on each other’s issuance and claims processes. A strong focus on people’s motivation and a performance-rewarding culture is essential too.
Product and Promotion: Complementing the process and people are the twin engines of product and promotion. Product innovation must be a continuous process. For instance, insurers can offer various riders like critical illness and discontinuation of income that cover specific needs of customers. As much as it is important to understand the customer’s needs and customise a suitable solution, it is equally important to create awareness about credit life offerings and how they can truly benefit the customer in an unfortunate event.
Being CustomerFirst
The high attachment level of an insurer’s credit life products to overall loan disbursements – and high premium inflows, too – can be directly traced to its razor-sharp focus on customer centricity. This fundamentally involves engaging deeply with the customer at all times, while simultaneously educating and training every person in the value chain to ensure thorough knowledge and ability to address customer concerns.
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Today, while banks have understood the importance of credit life in preventing NPAs and avoiding recovery procedures, borrowers are also beginning to welcome the comfort of their loan being covered. It is for customer-focused insurers to raise the bar further and not only drive the growth of the credit life business but also extend the benefits of credit life to lenders and borrowers across all loan segments to create a totally win-win ecosystem.
Views expressed by Amey Patil, Head – Credit Life, Bank of Baroda Channel, Indiafirst Life Insurance
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