Allowing insurance premium payments on an installment basis will boost sales
Three years ago, a proposal to offer products on premium installments came into the insurance sector. The question was who will fund the scheme and how much interest should be charged. As sector entities, insurance companies did not have the legal right to engage in other businesses. Nothing moved after that.
In 2018, insurers are looking at whether having premium financing options would help them get more customers into the books. On one hand, this will need a nod from Reserve Bank of India (RBI) for entities regulated by it and on the other, the insurance laws will have to be amended.
According to the Insurance Act, an insurance policy comes into force only after the full premium is received by the company. This means that if a policy is bought on EMI, the benefits will start kicking in only after the full set of payments have been completed.
Considering the fact that a majority of insurance products in the sector are push, it is imperative that customers get access to relevant products for the segment.
In the automobile segment, for instance, there is a belief that insurance adds up to the overall cost of the vehicle and that it is prohibitory in nature. Here, if the vehicle loan companies are allowed to offer insurance loans as well, those buying a car/bike can access these financing options for policies as well.
Another product is home insurance. Home loans can be availed from both banks as well as non-banking financial companies. However, insurance for the structure of the house and its contents is a product that is finding it difficult to find buyers. Clubbing an EMI for the house with installment facility for buying a home insurance product could work well.
Alternate financing channels need to be taken into consideration to enable an increase in product penetration. When mutual funds have given an option to customers to pay as low as Rs 500 a month for a systematic investment plan (SIP), there is no reason why an insurance company should not give an option to its policyholders.How the schemes will pan out and who will fund the schemes is a question that both IRDAI and RBI need to discuss and arrive at a consensus.