Credit Score and Insurance: How Are They Related?

Credit score and insurance are very much related. Insurance providers may utilize your credit history while you are going for new home or automobile insurance. This article would give you some useful details that would help you know in what manner your credit score is utilized by the insurance companies.

What Is the Credit Score that Insurance Providers Prefer?

A credit score is basically a picture of your credit at a particular moment. The details of your credit history and your application for insurance are taken into account by the insurance providers for determining a particular credit score. This is known as insurance credit score and it ranges from 0-999. A higher insurance credit score suggests a better score.

How Your Credit Score is Utilized by the Insurance Providers

If an insurance company is dependent on credit score, it can utilize your credit score for the purpose of underwriting and ascertaining the amount of premium payable by you.

Underwriting is the procedure of determining whether a new policy can be issued to you or a current policy has to be renewed.

Rating is the procedure that decides the amount of premium that you need to pay for insurance. Besides the usage of credit details, insurance providers would utilize other conventional rating elements to figure out the premium that is payable for your home or automobile insurance policy. A few of these conventional rating elements include the following:

Homeowners insurance - your claim history, your residential address and the replacement cost of your home.

Automobile insurance - your residential address, type of car that you have and your driving history.

How Would You Know Whether Your Credit History has Influenced Buying of Insurance?

FCRA (The Fair Credit Reporting Act) necessitates insurance providers to inform consumers if any unfavorable step has been taken due to their credit details. FCRA delineates unfavorable steps to include raising of premiums, refusing or terminating coverage, altering the amount of coverage or the terms and conditions in such a manner that it causes harm to the consumer. The insurance provider should also let him know the name of the countrywide credit bureau that provided the details.

Instances of an unfavorable step include the following:

• Termination, refusal or non-renewal of coverage
• Restricting advantages like eligibility for dividends
• Not offering the consumer the cheapest rate
• Not offering the consumer the most attractive discount
• Providing the consumer an incomplete type of coverage
• Providing coverage for something else that was not asked for
• Addition of a premium surcharge

ICICI Bank awarded ‘best bank’ for NRI Services

ICICI bank the largest private sector bank and the second largest bank in India, NRI services has won the World Finance (London) award for the best bank for offering NRI Services Worldwide, 2008. The bank has also been judged best for its remittance business segment for the second year in a row by the Asian Banker Magazine.

According to Girish Nayak, head of ICICI Bank NRI Services bank’s main international strategy has been the NRI footprint.

Nayak explained, "ICICI Bank helps NRIs maintain the all-important link with their home country by offering a complete product suite that is available at the click of a mouse or a simple phone call away. The Bank is always innovating new products to stay a step ahead of the NRI needs and maintain its leadership position as the NRI Banker of choice”.

In 2001 ICICI Bank launched its NRI Services as a one-stop shop to address the home-linked financial needs of NRIs. The product suite offered include a variety of savings and deposit products, structured investment options, online remittances, mortgages, insurance and equity-linked products addressing the entire gamut of financial needs of this overseas community.

ICICI Bank is having a global presence and a rich customer base spread across 18 other countries, through its combination of subsidiaries, branches and representative offices. The bank is having has a presence in the UK, Canada and Russia through wholly owned subsidiaries.

Product distinction includes a premium product called – NRI Edge targeted at affluent NRIs looking for priority services and exclusive privileges. Other specialized products being offered include a card-based remittance account for with drawing down money transfers at the India ATMs and the Easy Receive a beneficiary-focused account customized for NRIs' family members in India with linked benefits.

ICICI Bank first started a foreign exchange forwards linked product called Rupee Plus. The product is a risk free and an opportunity to earn significantly higher returns on NRI investments. 100% principal and return protection is offered by this product.

For NRIs Money Transfers is a core need therefore ICICI Bank is offering state of the art technology enabled speedy and low-cost options to NRIs. Customers from the overseas ICICI Bank offices are able to initiate instant payment to their accounts in India. Customers also get the facility to transfer funds from their ICICI Bank India accounts to any other bank account efficiently at no additional cost using the online platform.

PSBs, car companies signing agreements with a hope to push sales

From the last six to seven months automobile industry has been facing slump in demand but as the banks have started reducing interest rates on auto loans the automobile companies are trying to take full advantage of this. The auto companies are getting into tie-up with public sector banks (PSBs) to offer cheaper finance to the buyers to push their sales.

Except for State Bank of India, PSBs, which are having less than 20 per cent share in the auto finance business, are signing these alliances with a view to attain a bigger share of the pie.

SBI, and other banks such as HDFC Bank, Axis Bank, ICICI Bank and Kotak Mahindra Bank all account for 75 per cent of the market share.

Recent tie-up between banks and auto companies include Punjab National Bank (PNB) and Syndicate Bank with Hyundai Motors, Andhra Bank and Bank of Baroda with General Motors, Central Bank of India and Corporation Bank with Tata Motors, Punjab and Sind Bank and Corporation Bank with Maruti Suzuki.

Besides lower interest rates, some of the deals offer facility of lower margin money. Along the retail tie-ups, many auto dealers have also signed up with country’s largest lender SBI.

Hyundai Senior Vice-president (marketing and sales) Arvind Saxena stated, “The rates offered by public sector banks are much more attractive than the ones offered by private sector players. In addition, these banks have a wider reach across the country. The share of PSU banks in our sales has risen to 30 per cent from 18 per cent earlier”.

Auto makers also stated that now the processing time required for a vehicle loan by a public sector bank has also reduced.

General Motors India Director and V-P (corporate affairs) P Balendran informed, “Private sector banks had a market share of 70 per cent while PSU banks had a share of about 10-15 per cent and the balance was in cash. PSUs’ share has gone up to 35-40 per cent as of today. Speedier processing of loans by PSU banks has also helped them gain market share besides lower interest rates”.

In February Maruti Suzuki, a leader in the passenger car segment, had sold 70,625 vehicles, thus an increase of 19 per cent over same period last year. According to auto analyst with equity broking house maybe this is an indication of change in the business sentiment.

Public sector banks (PSB) are also seeing opportunity in signing these tie-ups as this can help in filling the gap in the financing market ever since private banks reduced their auto finance portfolio considerably. PSBs have the advantage of a huge network especially in the rural sector which has not been much impacted by slowdown.

But while sanctioning loan banks are scrutinizing a loan application very carefully.

According to credit head of small public sector bank, “Even if tie-ups are in place, it does not mean that branches would start work is gusto. They will make doubly sure that credit proposal is going to be sound to avoid for containing increase in incidence of bad loans”.

ICICI bank customers’ credit card disputes settled in Lok adalats

On Sunday in New Delhi in five district courts 100 Lok adalats were held. This was made possible with a unique collaboration between ICICI bank and Delhi Legal Services Authority. The purpose of these Lok adalat was to settle long pending cheque bouncing and recovery cases.

During the proceedings the defaulters gave their card numbers, therefore the details were then forwarded to the Lok adalat. The hearing of issues was heard in the presence of a magistrate and the bank officer.

A customer expressing his satisfaction said, "I like the concept because at least I was able to talk to the bank officer and they assured me that the matter will be settled. I'm relieved now”.

While another customer satisfied with the procedure said, “My cheque had bounced and my cash payment was not reflecting. Now the issue is being addressed. It’s good because I could avoid the harassment of the court.”

Thousands of ICICI bank customers across the city long pending bank disputes were settled in the day-long proceedings without getting into the legal rigmarole. But obviously, it was not a happy experience for everyone.

One of the unhappy customer complained, “I have been here since morning and they've been directing me from one room to the other. It is a useless concept.”

The bank had already computerized data relating to the 1.1 lakh cases pending in different lower courts therefore all the proceedings at the Lok adalats took place online.

After the settlement of the dispute, the orders of the Lok adalat will be dispatched to the concerned courts. Approximately 40,000 customers contacted the bank and settled their cases outside the court.

Bankers request RBI for relaxation in deadline for loan recast

In a meeting with the Reserve Bank of India (RBI), following the monetary policy announcement on Tuesday bank chairmen expressed their apprehension about more loans turning bad in coming quarters as the impact of global slowdown starts setting in.

But some bankers feel that the impact of slowdown on loan quality will be visible only after a few quarters. Bankers feel that despite of the fact textiles, real estate, retail, exports and auto sectors will come under increasing strain, banks will not be left with much options in a couple of quarters to prevent an asset from moving into the sub-standard category.

Therefore bankers are asking RBI to relax the deadline for reworking loan repayment schedules to avert cash-strapped corporates from being graded as defaulters. Earlier the banking regulator had permitted banks to reorganize their bad loans up to June 30, 2009, provided banks ‘initiated restructuring’ of accounts before January 31, 2009. Banks also wanted a explanation on whether instigating restructuring meant the signing of a new agreement or receiving a proposal from the borrower.

They further added, “We have sought a clarification to avoid a dispute with auditors in future. Auditors should not claim that we restructured an account, against RBI norms.”

As loan assets held by banks have started failing, with some banks reporting a rise in bad loans in December 2008. The country’s largest bank, State Bank of India (SBI), have accounted gross NPAs of Rs 13,314 crore for the quarter ended December 2008 as compared to Rs 11,182 crore in the corresponding period last year.

In the same period, India’s second-largest commercial bank ICICI Bank observed its gross NPAs rise to Rs 8,988 crore from Rs 6,474 crore and Canara Bank’s gross NPAs increased to Rs 2,515 crore from Rs 1,524 crore.

However bankers remarked, bankers are closely scrutinizing their asset portfolios and have stepped up their recovery measures in expectation of increased bad loans.

ICICI bank reviews its used car financing business

ICICI Bank is reviewing its used car financing business model. The bank has closed giving credit limits to its direct selling agents (DSAs), at the time when other banks have only constricted their DSA limits, after being hit by a burst in delinquencies and fraud.

ICICI Bank has also slashed dealer commissions which in turn have resulted in a reduction in the shelf rate for customers from 16% to 14.5%. Last year HDFC Bank and Kotak Mahindra had cut down the dealer commissions from 4-5% to around 2%. DSAs are an important component of the used car loan segment.

ICICI Bank has told agents to submit the files directly to the bank. Thus DSAs would get their commissions, but lose out on large volumes. Earlier, ICICI Bank had set a limit, based on which the DSAs funded the used car loans. But they used to take 90-120 days to complete the paper work regarding hypothecation.

Therefore bad debts increased from sub-1% levels to around 3%. ICICI Bank, which was among the largest used car loan financiers, gave away a mere Rs 20 crore last month. HDFC Bank and Kotak Mahindra disbursements were also low, with Kotak Mahindra’s outgoings falling by 30% in the past six months.

“The rejection rates for loan applications have gone up from 45% to 55%. However, sourcing from some company-owned dealerships has been good due to better customer profiles,” said Kotak Mahindra Prime CEO Sumit Bali. Usually used car finance rates are 3.5% higher than new car loan rates, and are currently floating at 17%. So on cutting down the dealer payouts, ICICI Bank has lowered the shelf rate from 16% to 14.5%.

“ICICI Bank has moved to a scenario of reduced dealership commissions and sourcing of partners. As a result, auto loan rates have realigned to about 14.5%,” said ICICI Bank head of car and commercial vehicle loans, Ravi Narayanan.

A case against ICICI Bank for doing unfair trade practice

Another case of unfair trade practice by ICICI bank has come into lime light. For this the bank has been directed to pay Rs 20,000 as compensation to a complainant and Rs 2,200 as litigation costs. The District Consumer Disputes Redressal Forum found the bank guilty of deficiency in service after a sanctioned loan of Rs 1, 02,000 was shown to the complainant against the told Rs 91,000. The bank has also been directed to restore the loan account of the complainant.

The forum in its ruling said, “It is yet another case of unfair trade practice on part of the bank in disbursing the loan to a third party instead of the complainant and thereby causing a loss of Rs 11,000 to the complainant and benefiting their stooges by giving them benefit of the aforesaid amount”. The forum also blamed the bank of teaming up with the Car Bazaar in order to serve up their vested interests.

Surjit Kumar Gupta in his complaint stated that in November 2005, an ICICI executive approached him with the offer of financing his old car at a low rate of interest. At that time he was assured a loan of Rs 1 lakh with equated monthly installments (EMI) of 36 months. He was then given a cheque of Rs 91,000 with an EMI of Rs 3,560 every month. The complainant was regularly paying the installment but he was not satisfied with the service of the bank, therefore he approached it to clear the whole amount. According to him the outstanding amount shown by the bank at Rs 46,218 in October 2008, was highly inflated.

When the complainant asked for the explanation but the bank neither returned the excessive amount nor gave any satisfactory reply.

In its reply, to the forum the bank stated that the full amount of loan sanctioned was Rs 1,02,000 as availed by the complainant. Bank denied that it made a short disbursal of Rs 91,000.

The forum, headed by president Jagrup Singh Mahal, found merit in the argument that Max Car Bazar is being supported up by the employees of the bank in order to favor them with a wrongful gain and to cause a wrongful loss of Rs 11,000 to the complainant. The forum apprehended “The payment was made to Max Car Bazar instead of making the same directly to the complainant. It is an unfair trade practice on the part of the bank.”