The Insurance Regulatory and Development Authority of India (Irdai) on September 8 released revised guidelines for trade credit insurance that will come into effect on November 1, 2021. The aim is to promote the sustainable and healthy development of trade credit insurance business and improve the economic situation. stability by labeling trade losses due to credit risks.
“These guidelines will apply to all insurers carrying on general insurance business, registered under the Insurance Act of 1938. However, ECGC Ltd (formerly Export Credit Guarantee Corporation of India Ltd) is exempt from the application of these directives ”, according to the circular published by Irdai.
Trade credit insurance protects businesses against the risk of non-payment for goods and services. It typically covers a portfolio of buyers and indemnifies an agreed percentage of an invoice (s) that remain unpaid due to a protracted default or insolvency. It contributes to the economic growth of a country by facilitating trade and helps improve economic stability by dealing with trade losses due to payment risks.
The scope of the trade credit insurance policy will be the credit risk that has a direct link with an underlying business transaction, the delivery of goods or services, according to the Irdai circular. If such a direct link does not exist, the unpaid amount is not insurable under a trade credit insurance policy.
Coverage may include business risks such as insolvency or the prolonged default of purchasers of goods and services. The trade credit policy will also cover rejection by the buyer after delivery, subject to the terms of a policy contract.
The guarantee could also include the non-receipt of payment due to the default of the collecting bank.
“The revised trade credit insurance guidelines, Irdai (Trade Credit Insurance) Guidelines, 2021, are a very positive step for the regulator. This will help providers and licensed banks and other financial institutions obtain insurance protection, which will help them manage the country’s political risk, open access to new markets, and manage the risk of non-payment. associated with the trade finance portfolio, ”said Sanjay Kedia, Country Head. and CEO, Marsh India Insurance Brokers Pvt. Ltd.
Political risk coverage is only available for buyers outside India and for agreed countries, according to the Irdai circular. Political risks include the application of a law or order restricting the transfer of payment from the buyer’s country to India. They also include war between buyer’s country and India and civil war, rebellion, revolution, insurgency or other unrest in buyer’s country.
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