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While the popularity of home loan insurance cover has shot up, hazard insurance is yet to pick up.
Mr Mohit Kumar, 35, an MBA Mechanical Engineer in Kolkata, bought a new property in one of the posh areas of the city. Happy with his new asset possession, he opted for home loan insurance cover. A few days later, he received a call from an insurance company offering him home insurance. But he refused it.
To the uninitiated, the two may sound similar, but there is actually a subtle difference between the two. While home loan insurance covers the loan amount, in case of a default arising out of death and permanent disability, a home insurance (or hazard insurance as it is commonly differentiated as) protects the property against fire and disasters.
While the popularity of home loan insurance cover has shot up, in the case of hazard insurance, the demand is yet to pick up.
Mr Mayank Saxena, Managing Director, Kolkata, at real estate consultancy firm, Jones Lang Lasalle (JLLS) India, maintains: “Home insurance cover is yet to become popular in the present scenario. People are yet to become aware of the provisions. Sometimes, it's just the mindset.”
Market sources admit home loan insurance covers are more popular, thanks to their bundling by banks. While bundling in itself isn't mandatory, banks encourage such offers following a rise in home loan demands.
A senior official at a public sector bank admits that it's a “win-win” situation for banks, as they needn't worry regarding recovery in case of a default. For the customer, he leaves no liability on his nominee.
“Home loan insurance is fast picking up. Along with this, we offer add-on covers for fire and burglary. The segment has potential for growth,” Mr Sanjay Datta, Head, underwriting and claims, ICICI Lombard said.
BANKERS' ADVANTAGE
Recent figures from the Reserve Bank India (RBI) show that as on February 2012, Rs 2,53,100 crore is the total deployment of bank credit in the housing sector. Banks' exposure in this sector is higher by 12 per cent (from Rs 2,26,500 crore during this period last year).
This figure, coupled with the fear of defaults, has forced banks to suggest insurance cover on the amount of loan extended.
Typically, a bank asks a customer to go in for a “term plan”, where his life is covered with an amount equivalent to that of the loan amount. The customer pays a premium, either one-time or spread across three to four years. For example, on a loan amount of Rs 20 lakh, the customer typically pays an estimated one-time premium of around Rs 20,000-Rs 25,000 for buying the additional insurance cover. The premium depends on the age of the customer and tenure of loan.
In some cases, even this one-time premium can be taken as an additional loan amount from the banks. This is later bundled into the EMI (equated monthly instalment).
Says Ms Trishna Guha, General Manager, Retail, Allahabad Bank, “During the last couple of years, we have been trying to educate customers to go in for home loan insurance. In fact, we have been more or less able to provide such insurance covers with our home loans in a majority of cases.”
Allahabad Bank, on its part, has tied up with Kotak Life and Life Insurance Corporation for sale of term cover, for insuring the life of the borrower. It also has a tie-up with a general insurance company, Universal Sompo, for extending home insurance. However, according to Ms Guha, the “latter product hardly has many takers”.
According to Mr Mukesh Kumar, Head – Strategic Planning, HDFC ERGO General Insurance Co. Ltd, many of the financial institutions offer a bundled product which covers both insurance covers. “Our Home Suraksha Plus is one such package policy which offers cover for the home (including the contents of the house) as well as the borrower,” he said.
Developers, too, are known to ask people to take up home insurance cover at times.
“We ask people to opt for home loan insurance (mortgage insurance), rather than home insurance. In some cases, even the banks are insisting on mandatory home loan insurance,” Mr Pradeep Chopra, Chairman and Managing Director, PS Group, told Business Line.
HOME INSURANCE
Incidentally, General Insurance companies, too, admit this. Of their total exposure, around one per cent is for home insurance.
“Unfortunately, home insurance is the least priority. There is a perceptible apathy in this regard. Housing loans have led to the growth in home (loan) insurance, purely at the bank's insistence. However, home insurance (hazard insurance) hardly has takers,” Mr T. A. Ramalingam, Head – Underwriting, Bajaj Allianz General Insurance, said.
According to him, even if people take such covers (hazard insurance) following insistence by the banks, there are hardly any renewals after the first year.
Mr Amarnath Ananthanarayanan, CEO and Managing Director, Bharti Axa, said that despite the low annual premium, between Rs 1,000 to Rs 1,500, there is an apparent disinterest in home insurance.
GROWING MARKET
According to him, the concept (home insurance) is quite prevalent in developed nations, particularly the Western countries.
“Family elders in India still stay with their children, and the house remains attended throughout the day. However, in the West, the culture of nuclear families and working couples has resulted in a steady growth in this segment,” he said.
However, with the nuclear family culture catching up here, market opportunities are set to rise in India. “India is still an underpenetrated market in all senses of the term,” he added.
