Life insurers are taking help from credit information companies to ascertain details given by customers at the time of purchase of a policy. The details include identity and address details of customers, and going forward, insurers might look at their credit history to see whether they can pay renewal premiums on time.
Rajeev Kumar, chief financial officer at Bharti AXA Life Insurance, said several insurers are now using services of credit information companies to verify details disclosed by customers while buying a policy.
Kalpana Pandey, chief executive officer (CEO) and managing director, Crif High Mark, said now increasingly insurance companies are taking the help of credit rating agencies.
“With the help of credit data, they can do a quick background check which helps in reducing the turnaround time and leads to more customer satisfaction. Apart from this, the rationale is also to check the propensity of the 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 per cent persistency in this period, meaning that a large chunk of the policies are renewed, while the newer and smaller ones have lower persistency rates.
Besides, insurance companies are now also using it to avoid de-duplication. For instance, if a customer already has three life insurance policies, it is likely that he might 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 know your customer (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 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, “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, However, Mohan Jayaraman, managing director, Experian, says even though the data usage by insurance companies has increased, it is still not as widespread as it is in banks.
The public sector is yet to warm up to this idea.