Indian Economy
IRDAI (Trade Credit Insurance) Guidelines, 2021
- 14 Sep 2021
- 3 min read
Why in News
Recently, the Insurance Regulatory and Development Authority of India (IRDAI) has issued revised guidelines for trade credit insurance.
Key Points
- Trade Credit Insurance:
- About:
- Trade credit insurance protects businesses against the risk of non-payment for goods and services.
- It usually covers a portfolio of buyers and indemnifies an agreed percentage of an invoice or invoices that remain unpaid as a result of protracted default or insolvency.
- It contributes to the economic growth of a country by facilitating trade and helps improve economic stability by addressing trade losses because of payment risks.
- Coverage:
- It can be issued to sellers or suppliers of goods or services, factoring companies as defined in the Factoring Regulation Act, 2011 and banks and financial institutions.
- For banks and financial institutions and factoring companies, it covers the loss on account of non-receipt of payment from a buyer, due to commercial or political risks, against the bills and invoices purchased or discounted.
- Commercial risks include insolvency or extended default of the buyer, rejection by the buyer after delivery subject to conditions of contract, and rejection before shipment and non-receipt of payment on account of the collecting bank’s failure.
- Political risk cover is available only in case of buyers outside India and will include occurrence of war between the buyer’s country and India and also war, hostilities, civil war, rebellion, revolution, insurrection or other disturbances in the buyer’s country.
- About:
- Applicability:
- These guidelines will apply to all insurers transacting general insurance business, registered under the Insurance Act, 1938.
- However, ECGC Ltd (formerly Export Credit Guarantee Corporation of India Ltd) is exempted from the application of these guidelines.
- Benefits of the Move:
- It will facilitate general insurance companies to help businesses manage country risk, open up access to new markets and manage non-payment risk associated with trade financing portfolios.
- It will also enable general insurance companies to offer trade credit insurance with customised covers to improve businesses for the Micro, Small and Medium Enterprises (MSMEs), considering the evolving insurance risk needs of these enterprises.
