Published: Wednesday October 29, 2008
Cuna Mutual Group, which specialises in insurance coverage for Jamaican credit unions and cooperatives, has launched a new product that will provide a cushion to borrowers who become temporarily disabled and can't meet their payments while helping to protect the portfolios of lenders.
"It reduces delinquency ratios and costs associated with delinquent accounts," said Nicola Johnson Young, Cuna Mutual's account relations managers in touting the policy at its launch last week.
There are 46 registered credit unions in Jamaica with approximately 932,000 members and over $38 billion savings and $33 billion in loans insured under various loan protection and savings insurance contracts. The default rate on credit loans around five per cent.
The new Cuna Mutual policy will prevent institutions having to transfer to the bad debt and columns loans that would hitherto not be serviced because borrowers become temporarily incapacitated and without incomes.
Cuna, under the programme, provides credit unions and co-ops with a master policy into which borrowers are enrolled. To be eligible, a borrower must be no older than 65, with a loan that is to be repaid in no less than six months but a maximum of 10 years and should not be in delinquency for more than three months.
In exchange for this coverage, the insured borrower pays a premium of $2.75 for every $100 of loan cover. In the event of the borrower becoming disabled, Cuna Mutual undertakes to repay the loan at up to $50,000 a month for a maximum of two years. In other words, Cuna Mutual would pay out over a 24-month period a total $1.2 million.
Protection from delinquency
"It offers protection from the likelihood of delinquency in the event a member should become temporarily disabled," said David Wan, Cuna Mutual's country manager.
Prior to the launch of the product a pilot run was done among eight of the 46 credit unions in Jamaica. Six of the pilot group have already signed contracts to take a master policy. Wan said that credit unions will be given an administrative reimbursement of between eight and 10 per cent of the accumulated monthly premium to administrate the policy.
He projected that 3,700 credit union members would enrol in the first year.
"From our research, 37,500 accidents happen every year translating into 102 per day requiring hospital visits," Wan said. "From this we have estimated that we can get at least 10 per cent, which is 3,700 enrolling in the first year of operation."
Cuna Mutual brought in just a little over $600 million in revenue last year and has projected revenue to climb to $800 million at the end of this year.
Life saving plan
"The payment protector further augments the coverage offered under the loan protection and life saving plan," Wan said.
The Family Indemnity plan (FIP) and the Golden Harvest savings plan are two of Cuna Mutual's most noted products offered to the societies.
But without giving specific data Wan said that the Golden Harvest has not build up to the level of the FIP. His projections for the end of this year put FIP to $600 million and Golden harvest to $50 million.
To date over $207 million in claims has been settled under the FIP. Overall, Cuna Mutual Insurance Society has total sum insured of $86 billion.