Will Your Credit Score Soon Influence Your Insurance Rates?

The insurance space may now get linked to credit scores. This means, that getting approval for an insurance plan will require and depend on your credit score.

As per a recent news, the insurance industry may start using CIBIL-like credit score soon. This is to help the insurance companies around the country prevent fraudulent claims and identify genuine people who truly need the insurance and are most likely to pay the timely premiums.

Past Impact of Fraudulent Claims on the Country's Insurance Business

Fraudulent claims have impacted the insurance business in the following manner:

• By causing losses for the insurance companies amounting to Rs.12,00 – Rs.15,000 crore
• By making 10-15 per cent of all insurance claims and enhancing frauds in the insurance sector with time
• Also, because of these fraudulent claims, those honestly seeking insurance plans and covers are burdened with premiums as high as 18%-22%. Given the frauds were limited or none, the insurance rates could have been much lower.

This shows the amount of impact credit scores of the insurance-seekers can have on the industry and the users as well. While it will not only lower the losses faced in the business, it will help the insurance providers better judge who should be approved insurance plans and who should not be.

Another impact will be on the interest rates charged. If the frauds are lowered, there will be basically the truly-needy people claiming for the insurance. Having a good credit score, they will ale to not only get their insurance approved, but also get the same at comparatively lower rates of interest.

A New System in Place

The General Insurance Council is an industry body that represents India's general insurers operating in the country. The industry is now demanding such a system where they are able to lower risks through credit scores.

The Council has taken a few steps to implement a CIBIL-like credit score system for the insurance sector.

One may know that credit score is a number that declares your creditworthiness to receive loans and insurance claims. Higher the credit score, it will be an indication for the service provider that you pay off your bills entirely and in due time. This will increase your chances of getting approvals for insurance claims, support the industry and also support you in further enhancing your credit score.

With the system in place, it will be difficult for those doing frauds with the insurance sector to get the coverage. They will either be rejected or given insurance but at a considerably higher rate of interest.

Credit Scores Serving the Banks

A similar kind of system has in past worked for the bank space. The banks also demanded linkage to credit scores to be able to lower down the losses, reduce frauds and allow genuine needy people to benefit through the banks' services.

The insurance space is now looking forward to a similar system in their sector.

Benefits of CIBIL-like Credit Score System

The insurance sector could benefit in the following ways:

Better Penetration and Expansion

The step, if initiated, could result in better penetration for the insurance industry. The insurance providers should be able to undergo an expansion.

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Stable Premium Rates

The space will be able to keep their premium rates stable. The burden will not transfer to those honest to the system and will help the insurers serve everyone alike.

Benefit Honest Customers

The insurers will be better able to serve the individuals who are genuinely in need for insurance claims. This will protect the rights of the honest citizens looking for insurance coverages.

Lower Frauds

The frauds have already caused immense loss to the sector. And this needs to be stopped to allow a complete development at the national level. The fraudsters won't get enough chances to play their games.

Bottom Line

A better insurance system in the country is a step toward a better financial system nation-wise. It is the need of the hour and may play a major part in reducing frauds. The insurance space when linked with the credit scores will benefit honest customers with small premiums and smooth approvals. So, make sure you keep a good credit score by paying all dues in time. This will serve you and the nation in the long run.

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