CREDIT LIFE INSURANCE
An agreement b/w Khushhali Bank and NJI life
SADAF AURANGZAIB, Senior Correspondent
June 25 - July 01, 2007
NJI Life has secured the largest micro-lender credit protection insurance portfolio in Pakistan. During the last five years, it has covered over 600,000 borrowers. Recently Khushhali Bank has partnered with New Jubilee Life Insurance Company Limited, Pakistan to provide insurance services to its clients across the nation. Initially it is designed to extend protection to a borrower and associated guarantors against payment default in case of death and total disability rendering the individual unable to generate an income. We talked to Mr. Javed Ahmed, MD NJI life Insurance company to know the basic concerns that the agreement deals with.
PAGE: Tell us a bit about the recent joint venture of NJI life with Khushhali Bank?
JA: Khushhali Bank is a microfinance institution serving the underprivileged in Pakistan. They have already provided micro loans to over 200,000 poor in both the urban and rural sectors of society. Khushhali aims at enhancing the revenue generating capabilities of the poor by financing their businesses and entrepreneurial skills.
New Jubilee Life Insurance Company Limited, as a leading micro-insurance provider in Pakistan has endeavored to protect the families of these persons against financial loss arising due to the death or permanent disability of their breadwinners. In other words in case of death or disability of the borrower, NJI Life would pay off the loan of the borrower so that the family is not financially burdened.
PAGE: Is this a kind of bancassurance?
JA: No, this is not Bancassurance in the traditional sense of the word. In common parlance such types of insurance are labeled as 'Credit Life'. As mentioned, it is a scheme to protect the family of the deceased or disabled borrower from the burden of debt.
Bancassurance on the other hand means selling of life insurance policies through bank. Effectively the bank serves as a distribution partner of the insurance company and uses insurance products to increase its customer's loyalty and fee based income. For the customers it means all financial services under one roof.
PAGE: What is the potential target of this venture and how productive do you think will it be in delivering the desired results?
JA: Khushhali Bank is the leading microfinance providers in Pakistan. Their customer base is expected to grow rapidly in the coming years. The outlook is very positive and we as the life insurer of all their borrowers, are looking forward to a time sustained, mutually beneficial business relationship. † †
PAGE: How do you think these kinds of agreements can help the insurance in general and how do you see the role of banks in this regard?
JA: As mentioned, these kind of insurance arrangements aim to help the poor segment of the market in discharging their financial liabilities in the event of death or disability of the borrower. By providing insurance coverage to low income group, we expect the awareness of insurance to increase in the country. We plan to launch saving based products for this market which will lead eventually to a significant increase in national savings.
Microfinance institutions provide an ideal platform for distribution of these products as they already have a large network of branches. Khushhali Bank being the largest provider of microfinance will play a key role in driving this initiative.
PAGE: What long run benefits do you foresee through this contract?
JA: NJI Life is a subsidiary of the Aga Khan Fund for Economic Development (AKFED), Switzerland. The contribution of AKFED in the economic and social development of Pakistan is considerable and requires no elaboration.
NJI Life has introduced many new concepts in the field of life insurance in Pakistan. These include credit life insurance, Bancassurance, account-holders insurance etc. Micro-insurance too is a pioneering endeavour of NJI Life in Pakistan. In collaboration with AKAM (The Aga Khan Agency for Microfinance) - Microinsurance Initiative, NJI Life is committed to uplifting the economic and social conditions of the urban and rural poor in Pakistan through various insurance and saving schemes. Normally the enormous benefits that life insurance embodies are unaffordable and hence unavailable to the poor that segment of society that probably needs insurance the most. By designing special schemes, plans and products specifically catering to the need of these masses and by using effective and economical modes of distribution and management, NJI Life aspire to bring to this largely neglected sector of Pakistan's working force a basic financial support base for growth and prosperity. This initiative would surely make a difference in improving the overall economic situation.
PAGE: How do you see the role of banking industry in boosting the Insurance practices?
JA: Bancassurance has played a key role in expanding insurance business in many countries. The concept of Bancassurance is getting popular in Pakistan and banks can play a very important role in increasing the awareness of insurance in the country. As mentioned, by making insurance products available through their network, the banks will be able to increase their income and customer loyalty. Since the distribution cost of banks will be lower therefore the customers will benefit from low cost products. We expect that sale of new insurance policies through bank will be the major source of business in future.
PAGE: Lastly is there any thing that you would like to mention through this medium?
JA: NJI Life has been trying to bring in a change in the way insurance is done in Pakistan. With the introduction of new types of products through different channels, backed by outstanding customer service, we wish to serve the citizens of Pakistan in the best possible way. The life insurance industry has been requesting the Government of Pakistan to provide some tax relief on life insurance premium just as has been done in case of mutual funds and purchase of IPO shares. We hope that the Government will give due consideration to this long outstanding request as this will help life insurance industry in contributing more towards economic growth of the country.