IRDA issues revised guidelines for business credit insurance

“These guidelines shall be applicable to all insurers carrying on general insurance business registered under the Insurance Act, 1938. However, ECGC Limited (formerly Export Credit Guarantee Corporation of India Limited) is exempted from the application of these guidelines.” irdai round shape.

Trade credit insurance protects businesses from the risk of non-payment for goods and services by buyers. It usually covers a portfolio of buyers and compensates an invoice or an agreed percentage of invoices that remain unpaid as a result of long-term default, insolvency/bankruptcy. It contributes to the economic development of a country by facilitating trade and helps in improving economic stability by addressing trade deficits due to payment risks.

According to the IRDA circular, the scope of cover under a trade credit insurance policy will be credit risk, which is directly related to an underlying trade transaction i.e. delivery of goods or services. If no such direct link exists, the amount outstanding under the Trade Credit Insurance Policy is not insurable. The cover may include but is not limited to the following risks.

Commercial Risk:

> Insolvency or long-term default of the buyer; Bank responsible for payment in case of letter of credit transactions; and stock holding agent in case of transaction of goods.

> rejection by the buyer after delivery subject to the terms of the contract; Buyer prior to shipment, where the goods are manufactured or manufactured specifically to the buyer’s requirements and cannot be sold elsewhere

> Non-receipt of payment due to failure of the bank.

Sanjay Kedia, Country Head and CEO, Marsh India Insurance Brokers Pvt Ltd said, “The Revised Guidelines on Trade Credit Insurance, IRDAI (Trade Credit Insurance) Guidelines, 2021, is a very positive step by the regulator. It will help suppliers as well as licensed banks and other financial institutions to get insurance protection that helps them manage the country’s political risk, open access to new markets and manage non-payment risk associated with trade financing portfolios. will help.”

political risk:

Political risk cover is available only in the case of buyers outside India and in respect of the countries agreed upon. Political risks include the following:

> the operation of a law or an order, decree, or regulation which has the force of law, which prohibits, in circumstances beyond the control of the insured and/or the buyer, the transfer of payment from the buyer’s country to India or controls. .

> Event of war between buyer’s country and India.

> The occurrence of war, hostilities, civil war, rebellion, revolution, rebellion or other disturbance in the buyer’s country.

> Enforcement of any law or order, decree or regulation having the force of law which, in circumstances beyond the control of the insured and/or buyer, prevents the importation of goods into the buyer’s country.

> Cancellation, in circumstances beyond the control of the insured and/or the buyer, the already issued and currently valid authority to import the goods, as per the Irdai circular.

> In respect of goods consigned from India, in respect of any additional handling, transportation or insurance charges which are caused by interruption or diversion of travel outside India and which are impossible to be recovered from the buyer.

> Any other reason, except in the case of merchanting exports, in which this risk shall be excluded, arising out of an event occurring outside India, but is not a cause inherent in the nature of the goods or which is under the control of the insured and/ or the buyer or who is specifically excluded from the purview of cover under the policy in accordance with the Irdai circular.

Kedia further added, “This move to support factoring business by insurance cover, will unlock enormous value in the balance sheet in the form of accounts receivables of corporates, especially for the SME/MSME sector. Corporates will now be able to free up capital. and businesses as the business credit insurance policy will enable them to monetize the accounts receivables.”