Context
Life insurance policies were taken as collateral against loans. Premiums were collected by a partner pension company from the customer's account or credit card, and where collection failed the company had the right to cancel the policy. That was the problem: when a policy was cancelled, the bank lost the loan's collateral without realising it. Collateral loss was the consequence not of a credit decision but of a collection failure.
Approach
- Credit-linked policies were separated from ordinary policies and placed under a distinct collection and cancellation regime.
- For credit-linked policies with unpaid premiums, steps were defined that raised an alert and created an intervention window on the bank side before cancellation.
- Arrangements were made to protect the bank's position as loss payee in the pledge process.
- An alternative payment-instrument retry was designed into the collection flow to reduce outstanding premium balances.
Outcome
- The risk of collateral quietly disappearing was closed at process level.
- The bank could receive an early warning on policies with unpaid premiums.
- The link between loan collateral and insurance operations was established systemically.
- Alternative collection routes were introduced to reduce outstanding premium balances.
This case study describes the project through its scope and approach. Client name, commercial figures and performance metrics are withheld under confidentiality obligations.
What This Project Left Behind
A collateral existing in law does not mean it exists in fact. Collateral structure is a variable to be monitored across the life of a loan, not only at origination. The same question comes up when preparing a company's credit file: is the collateral you pledged in the same condition today as it is in the contract?
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