Lower insurance premium, smoother application process on the cards? Industry starts work on credit score-like system

Amid industry calls to have a dedicated risk assessment profiling system for the insurance space, preparations are underway to link the sector with credit scores. The General Insurance Council, an industry body representing general insurers operating in the country, has kicked off the process of implementing a CIBIL-like credit score system for the space. When deployed, such a system will make it difficult for those with a history of insurance fraud to get insurance coverage. Such applicants may face rejection or higher premium requirements from insurance providers. 

The score will also reflect insurance-related financial behaviour that will determine the applicant’s creditworthiness in the future, directly impacting their chances of borrowing funds in the form of loans.

In other words, the insurance sector has taken the first step towards establishing the risk profiling system that may impact potential insurance customers directly.

Under the system, the existing credit score of the insurance buyer will also be taken into account by insurers while processing applications.

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Under the system being designed, there are two main things that insurance buyers can secure, if they have a healthy credit history:

• Smaller premium
• Smooth approval

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Earlier, insurance players operating in the country demanded a credit score system dedicated to the industry in order to boost penetration and to tackle challenges related to fraudulent claims. Similar to how the credit score serves the banking space, insurers sought a system that could identify individuals repeatedly filing fraudulent insurance claims.

How fraudulent claims have affected insurance business

Fraudulent insurance claims are an age-old problem in the insurance space. Every year, such claims:

• cause losses to the tune of Rs 12,000-15,000 crore to insurance companies;  
• stand at around 10-15 per cent of total insurance claims, and
• force honest policyholders to bear premiums as higher as 18-22 per cent  

Benefits of a credit score for insurance 

• Honest customers to benefit  
• Fewer fraudulent claims
• Better penetration and expansion for industry
• Stable premium rates 

What is the General Insurance Council?

Set up under Section 64C of the Insurance Act, 1938, by insurance regulator IRDAI, the Council has representatives from a string of general and health insurance and reinsurance companies.