Insurance premium financing, currently in its early stages, is expected to see a healthy growth of 25 per cent annually over the next few years amid increasing awareness of insurance and higher liquidity management needs among customers, according to an industry expert.
In premium financing, a borrower secures a loan from a third-party provider to cover the policy’s premiums. The borrower, like other loans, pays the interest till the loan is fully paid off. The financing option, which is a sizable market outside India, is in its early stages in the country.
However, according to industry players, amid the sustained growth in the overall insurance industry and more insurers developing tailored solutions, and increased acceptance of premium financing in the Indian financial landscape by the insurers, the industry is likely to see healthy growth.
BimaPay, Finsall, Mudrasree, and Insurfin are some of the players facilitating premium financing in India currently.
“Over the next few years, the market is projected to grow at a steady pace of 20-25 per cent annually. This forecast reflects a maturing market, where insurers, financial providers, and clients have a deeper understanding of premium financing and its long-term benefits” said Hanut Mehta, co-founder and CEO, Bimapay Finsure.
“…this combination of early explosive adoption followed by steady expansion positions premium financing as a critical tool in modern financial and insurance strategies,” Mehta said.
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These premium financers in partnership with non-banking finance companies (NBFCs) charge an 8–12 per cent interest rate where the tenure can be customised, said industry insiders, adding that the policyholders pay 20-25 per cent of the premium as a down payment depending on the customer profile and the insurance policy acting as the collateral. The insurance premium financing platforms charge a platform fee of around 3-5 per cent, they said.
These companies which started off with a focus on the motor segment have shifted to health insurance financing amid a surge in medical costs in the country. The average ticket size of these loans ranges from ~40,000 to ~45,000 and the sum insured can range from ~4-5 lakh to ~2– 3 crore.
“When we started, it (average ticket size of premium financing) was about ~16,000–~20,000. Now we have graduated to ~35,000 to ~40,000”, said Prabal Khanna, Co-Founder & COO, Finsall.
Premium financing has been extended to policies as low as ~7,000, as well as for retail insurance policies ranging from ~8.5 lakh to ~9 lakh, Khanna said.
Generally, there is an increase in demand for premium financing in the last quarter of the financial year, mainly as the retail customers and business houses purchase or renew policies ahead of the tax deadline when customers are already grappling with other payments and investments.
Mehta said this is primarily because individuals and businesses purchase or renew policies to save on taxes under sections like 80D of the Income Tax Act. “During this time, insurers also offer promotions or discounts, encouraging customers to opt for better or longer-term policies,” Mehta added.
Customers can avail themselves of premium financing through any channel - the website of the insurer, or individual agent, or through the broker at the end of the payment page. The insurance policy acts as the collateral. In case of default in loan by customers, companies surrender the policies and the contract turns void.
“(In case of delinquency,) the policy is cancelled. Basically policy is the contract between the insurance company and the insured. This contract is void,” said Tim Mathews, Co-Founder & CEO, Finsall.
Although premium financing companies work closely with the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (Irdai), they are not regulated by them. Mathews said that Finsall was trying to be part of the first fintech Self-Regulatory Organisation (SRO) set by the RBI – FACE and to ensure that the company also follows all rules.
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