Who will pay the loan if the borrower loses their job? New rules are being prepared in Azerbaijan
In Azerbaijan, another insurance product is being developed that provides protection against job loss.
According to the rules being developed, insurance of credit risks will provide for the repayment of outstanding debt at the expense of a third party in cases that will be determined after the approval of the relevant document.
This was stated on his Facebook page by member of the Milli Majlis Committee on Economic Policy, Industry and Entrepreneurship, MP Vugar Bayramov, who also emphasized the following: “Currently, life insurance for borrowers is already applied, as well as insurance in case of death and disability. This mechanism is regulated by the rules of the Central Bank. The new rules provide for insurance directly against the risk of job loss for persons who have taken out a loan.”
The deputy noted that in some cases citizens take out loans, but subsequently, for reasons beyond their control, face difficulties in repaying them: “For example, a person may lose their job due to the closure of an enterprise, staff reduction or other circumstances that they cannot influence. As a result, they have difficulties repaying the loan. Credit insurance, or insurance of credit risks, will allow in such cases to assign the fulfillment of obligations to repay the debt to the insurance company. Insurance of credit risks will not only provide citizens with additional financial protection, but will also reduce risks for banks.”
According to V. Bayramov, one of the key issues in introducing this type of insurance is the additional financial burden on the borrower: “Using an insurance policy means additional expenses for the person taking out the loan. At the same time, only upon payment of insurance premiums will the insurance company be able to assume obligations in the event of an insured event. The introduction of such a mechanism requires a comprehensive assessment. We are talking not only about insuring borrowers against job loss, but also about changing the structure of the loan cost, covering loan payments by the insurance company, distributing obligations between the borrower, the bank and the insurer, as well as assessing the impact of employment risk insurance on the lending market.”
“Given that interest rates on loans in Azerbaijan remain high, banks could offset the increase in the cost of the loan by lowering interest rates when introducing this type of insurance. In this case, its application will become possible without a significant increase in the financial burden on borrowers,” the deputy continues, noting that in any case, it is advisable to approve the new rules for insurance of credit risks as soon as possible, since their introduction will be a progressive step for the banking sector and at the same time will reduce the risks faced by banks.
