Member of parliament Vugar Bayramov announces launch of new type of insurance for borrowers
Another product providing unemployment insurance will be launched in Azerbaijan.
In cases provided for by the credit risk insurance rules being approved, repayment of the outstanding debt will be carried out at the expense of a third party. The Central Bank has already prepared the rules, and they are expected to be applied in a short time.
This was written on his social network page by Milli Majlis deputy, member of the committee on labor and social policy Vugar Bayramov.
He noted that insurance of borrowers against the risks of death, life, and loss of capacity to work is already applied and regulated by the rules of the Central Bank. The new rules, however, directly provide for insuring persons taking out loans against the risk of job loss.
"In some cases our citizens take out loans, but for reasons beyond their control difficulties arise with repaying them. A citizen's workplace closes, he is dismissed, or other events occur that do not directly depend on him, as a result of which difficulties arise with repaying the loan. Insurance of loans or credit risks will allow the insurance company to repay the obligation when such cases occur. Credit risk insurance will protect citizens financially and reduce the risks of banks," the deputy emphasized.
The new type of insurance will apply only to persons working on the basis of a valid employment contract. At the same time, it is expected that the conditions will comply with the requirements of the Law "On Unemployment Insurance." It is planned that unemployment insurance will be offered on a mandatory basis to persons taking out loans from banks. The use of this insurance service for persons taking out consumer loans will be voluntary, that is, the client is free in his choice.
Upon the occurrence of an insured event, full or partial repayment of the loan will be carried out by the insurance company. In this case, the insured events provided for by legislation will be taken into account. Elimination of the workplace, staff reductions, expiration of the employment contract, change of the owner of the enterprise, entry into legal force of a court decision on the reinstatement of an employee who previously performed the relevant duties, etc., are included in the list of insured events.
The deputy emphasized that the use of insurance means additional expenses for the borrower, and obligations upon the occurrence of an insured event can be covered only if insurance payments are made.
"This, in addition to insuring persons taking out a loan in the event of loss of employment, makes relevant the assessment of the impact of applying insurance on the structure of loan expenses, the coverage of their loan payments through insurance, the distribution of obligations between the borrower and the bank, as well as on the credit market as a whole. Given the high interest rates on loans in Azerbaijan, banks, by reducing certain interest rates in the case of applying this type of insurance, can compensate for the increase in credit expenses. In this case, the application of this type of insurance is possible without creating serious costs for the borrower.
Recent statements by the Central Bank also show that with the application of this type of insurance, banks will go for a reduction in interest rates on loans. Since credit risk insurance leads to a reduction in the direct and indirect expenses of banks. That is, the interest rate on a loan covered by unemployment insurance will be lower than the rate on ordinary loans. And this will stimulate the use of the mentioned type of insurance," he summed up.
