Life insurers are now taking help from credit information companiesto ascertain details given by customers at the time of purchase of policy.
This includes the identity and address details of the customers, while going forward insurers may look at credit history of the customers in the future to see whether they can pay renewal premiums on time in the future.
Rajeev Kumar, chief financial officer at Bharti AXA Life Insurance
said that several insurers are now using services of credit information companies to verify details disclosed by customers while buying a policy.
To ensure that they have the appropriate details, insurers are turning to these companies. Kalpana Pandey, CEO & Managing Director, Crif High Mark said that now increasingly insurance
companies are using the help of credit rating agencies.
“With the help of credit data, they can do a speedy background check which helps in reducing the turn around time and leads to more customer satisfaction. Apart from this the rationale is also to check the propensity of customer to pay back which can end up improving the persistency ratio of the companies," she said.
Persistency, which refers to the ability to keep renewing a customer's insurance
policy till it reaches maturity, is measured from the 13th month onwards. The large life insurers have as high as 85-90% persistency in this period meaning that a large chunk of the policies are renewed, while the newer and smaller ones have lower persistency rates.
Apart from this, insurance companies are now also using it to avoid de-duplication. For instance, if a customer already has three life insurance policies then it is likely that he may default on one. Or on the other hand, if the customer already has a relationship with you then the company can offer him a better premium.
"At this point, services of credit information companies are being taken to get information of credit history, It is also being used for validating KYC details. Now that the Insurance Act mandates that no claim can be refused after three years, the risk assessment process has to be far stronger and needs to be built at the acquisition stage itself with help from credit information companies," said Girish Kulkarni, managing director and chief executive officer, Star Union Dai-ichi Life Insurance.
The Insurance Act has revised an earlier provision to now say that all claims have to be paid after three years, even if they are found to be fraudulent. This has sent insurers into a tizzy since there are several gangs which take out fake policies and then file claims. With the help of credit information companies, these cases can be minimised since their identity, credit history and payment details can be checked prior to issuance of policies.
Going forward, insurers said that those with a very bad credit history could also have a chance of rejection of their request to get an insurance policy. Further, pricing could also differ for those with a bad credit history if it is permitted by the regulator.
These companies also come to the aid of insurers, at the time of claim settlement, to ensure that the money efficiently reaches the customer irrespective of the change in their location.
A J Bose, Executive Director- Operations & IT, SBI Life Insurance said that they have used services of credit information companies. "We have been taking their services to get latest addresses and contact numbers of customers. When they change their address or contact information, not all of them inform the insurance companies. This data helps us at the time of claim payments," he said,
Even though it is at a discussion stage, Bose said that credit history information could also be used in the future to assess whether or not a customer would default in their renewal premium payments.
However, Mohan Jayaraman, Managing Director, Experian explains that even though the data usage by insurance companies has increased it is still not as wide-spread as it is in banks. “Unlike banks were credit score is checked before handing out any loans the insurance companies essentially and it is integrated with the system, we don’t see that with insurance companies yet. In their case it is mostly post-facto.”
Further, public sector is yet to warm up to this idea. Credit agencies agree that it is mostly the insurance companies from the private sector that are using the data.