Citibank's `Suraksha' -- The safe card

Anand Ram

WHEN Sachin Tendulkar asks viewers to `Go get it!' in a credit card commercial, he definitely endorses the general consensus that credit cards are increasingly becoming a part of everyday life.

To lure people to switch to plastic, card companies are packaging a variety of goodies to enhance their appeal and encourage their use.

The latest on offer is an insurance package offered by Citibank. Still in its infancy, the policy -- Suraksha -- offers a personal accident cover and a credit shield that cushions the nominees in the event of the cardholder's demise. The insurance policy schemes are being offered by Citibank in association with Tata AIG Life Insurance Company and Royal Sundaram Alliance Insurance Company.

Nuts and bolts: The cardholder becomes eligible for personal accident cover in the event of death or permanent and total disability. The family is entitled to Rs 5 lakh on a Silver Card, and Rs 25 lakh on a Gold Card. This personal accident insurance cover is offered by Royal Sundaram Alliance Insurance Company.

The credit shield protects the family of the member from repayment obligations of outstanding debt incurred by purchases made on the card. This cover -- offered in association with Tata AIG Life Insurance Company -- waives an amount equal to Rs 1 lakh (Rs 2.5 lakh for the Gold Card holder) in the event of the demise or permanent and total disability of the cardholder.

Both the policy components were initially offered charge-free for the first three months. The free trial for the Silver cardmembers was between June 1 and August 31 and for Gold Cardmembers between August 1 and October 31 of this year. This has also in recent times generated a controversy following a move by the company that charged members for the service if they did not expressly opt out of the scheme. Citibank has reviewed this clause after a slew of complaints from cardholders. It now mails application forms to members that let them sign up for service.

The premium for both covers has been set as a fixed and a variable component. The fixed component, in turn, has two parts. A fixed premium of Rs 14.70 (Rs 73.50 for Gold cardholders) is charged every month in addition to the transaction handling charge of Rs 15 for an Accident Insurance Cover of Rs 5 lakh. The variable charge, directed towards the Credit Shield, is computed on the basis of a risk premium of 0.086 per cent per month (0.896 per cent per month for the Gold Card) on the total bills outstanding. The total bills include usage that was still unbilled as on the last working day of the month.

For instance, if the card was used to buy goods worth, say, Rs 50,000, then he would be charged a premium of (0.086 * Rs 50,000) Rs 43 for the month. The premium charges would appear as a debit on the card statement every month.

How the scales top: The moot point is whether the insurance covers have any value additions to offer to the cardholder. That is, will the cardholder be able to buy the same type of cover, or at least the personal accident cover, for a lower price from other independent insurance companies. A rough analysis suggests that the price of the PAI cover is definitely a value-for-money proposition. Besides the policy does away with the need for health checks.

It is interesting to note that other card companies offer a range of insurance covers, ranging from accident to purchase protection plans and delay/loss of baggage, passport and tickets as a complementary service to cardholders depending on the class of card they own.

According to Citibank, the lower premiums facilitated by negotiated group rates offer a compelling reason to opt for the covers. The savings size up to as much as 66 per cent, compared to covers offered by other insurance players. This would make opting for twin insurance covers from Citibank a rewarding pay-off for customers. However, cardholders who already hold other personal accident policy covers may stay put, as the cover will not result in any value addition. The landscape of policy terms and premium amounts is bound to change with competition from the nascent insurance industry.

According to Citibank, the response has been good so far. Over 80 per cent of the eligible card members continue to enjoy benefits of the plan. In any case, the heat of competition among credit card companies can only result in cooler deals for customers. How long such benefits would remain free depends on the growth and maturity of this industry.

As the war of the cards rages, a lot more deals may be on the cards.