Loan default risk insurance for banks

Frequently asked questions

• What is loan default risk insurance?

  It is voluntary insurance under class 14, credit insurance. The insured event is a loss suffered by the bank because the borrower failed to perform under the credit agreement: failure to repay the principal and to pay the accrued interest, including interest on overdue indebtedness. The policy covers the part of the loan that is not secured by collateral or by any other form of security.

• Who is the policyholder and who pays the premium?

  The bank is the policyholder, the payer of the premium and the beneficiary. The contract is bilateral: it is signed by the bank and the insurer. The borrower is not a party to the insurance contract — the compensation goes to the bank, which is also named as the beneficiary in the policy.

• Is the borrower a party to the insurance contract?

  No. The borrower does not sign the contract, does not pay the premium and carries no obligations under the policy. Its creditworthiness, the loan term and the share not covered by collateral affect only the risk assessment and the rate — the contract itself remains bilateral, between the bank and the insurer.

• What goes into the sum insured?

  The principal under the credit agreement, the interest accrued on it, all interest for the period of overdue indebtedness, fees, default interest and penalties, as well as the bank's financial costs connected with advancing the loan. The sum insured is the maximum extent of the insurer's obligations: the payment cannot exceed it.

• What is the waiting period?

  It is the 30 calendar days following the date on which the borrower was due to repay the loan funds under the schedule in the credit agreement. The day after the waiting period expires is treated as the date of loss, and it is from that date that the bank's approach to the insurer is counted.

• How much does the policy cost?

  The premium is a percentage of the sum insured for the whole loan term, not per year. As a guide: up to a year — from 0.2%, one to three years — 2–3%, over three years — from 3%. The base rate is 2.4%. Indicative figures, not an offer.

• How is the payment made if the loan is partly collateralised?

  The portion not secured by collateral is paid on the bank's first demand. The remaining debt is paid once the pledged assets have been sold — in both cases within the sum insured stated in the policy.

• When can the insurer decline a claim?

  If the information supplied about the borrower or the transaction is inaccurate and the risk cannot be assessed; if the credit terms were breached deliberately; if unlawful or fraudulent acts of the bank are established by law; if the loan term was extended without notice to the insurer; if the premium was not paid; if the proceeds were misused; if the bank seeks its own court costs.

• What happens after the payment?

  The right of claim against the borrower passes to the insurer within the amount paid. The bank must hand over all the necessary documents and assist with recovery. If the bank receives money from any source after the payment, it is split as follows: the insurer takes the compensation it paid and the related costs, and the remainder stays in the bank's account.

• How quickly is the decision made and the compensation paid?

  The insurer reviews the documents submitted and decides within 5 working days whether to recognise the insured event. If it is recognised, a report is drawn up and the compensation is transferred to the bank within 5 banking days of the report being signed. If the insurer declines, it must inform the bank no later than 3 working days, setting out the reasons for the refusal.

• What is the term of the contract?

  The contract takes effect when the parties sign it and runs for the term of the credit agreement. The insurer's obligations begin once the premium has reached its account in full and continue until the end of the period stated in the policy. The term can be extended by an addendum with an additional premium.

• What if the premium is only partly paid?

  How the premium is paid, what happens if it is only partly paid and how it is recalculated when the loan is repaid early are all set out in the insurance contract and the Civil Code. A specialist will confirm these terms when pricing your deal.

• The loan is in a foreign currency — how is the payment calculated?

  If the loan funds were advanced in a foreign currency, the sum insured is stated both in that currency and in soum. Payments under the sum insured are made in the national currency — in soum, at the official rate of the Central Bank of the Republic of Uzbekistan on the day the compensation is paid.