Currently, the insurance companies are charging 10-12 interest rate on loans against policies. As the BFIs have reduced their interest rate as low as 9 percent, the companies are in pressure to extend loans in one digit interest rate as well.
Insurance companies keep the amount collected through insurance premiums in fixed deposits with BFIs. They are also earning less interest from their deposited amount respectively.
The double trouble will surely affect the profit of the insurance companies. Shiva Nath Pandey, Chairman of Life Insurance Association said that the income of life insurance companies will decrease if the loans against policies disbursed by the companies declines.
‘There would not be much of the problem to take a loan against the policy, however, if the bank’s interest rate is low, they will prefer bank. In such a scenario, either we have an option to reduce the interest rate or we will have to find another alternative,” he added.
In both conditions, the income source of the insurance companies may decline.
