Home / Insurance / News /  Irdai issues revised guidelines for trade credit insurance
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The Insurance Regulatory and Development Authority of India (Irdai) on 8 September issued revised guidelines for trade credit insurance that will come into effect on 1 November 2021. The aim is to promote the sustainable and healthy development of the trade credit insurance business and improve economic stability by labelling trade losses because of credit risks.

“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," according to the circular issued by Irdai.

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.

The scope of cover under the trade credit insurance policy will be the credit risk that has a direct link with an underlying trade transaction, the delivery of goods or services, according to the Irdai circular. If no such direct link exists, the outstanding amount is not insurable under a trade credit insurance policy.

The cover may include commercial risks such as insolvency or protracted default of the buyers of good and services. The trade credit policy will also cover rejection by the buyer after the delivery, subject to conditions of a policy contract.

The cover could also include non-receipt of payment because of the collecting bank’s failure.

“The revised guidelines on trade credit insurance, Irdai (Trade Credit Insurance) Guidelines, 2021, is a very positive step from the regulator. This will help suppliers and licensed banks and other financial institutions get insurance protection, which will help them manage country political risk, open up access to new markets, and manage non-payment risk associated with trade financing portfolio," said Sanjay Kedia, country head and chief executive officer, Marsh India Insurance Brokers Pvt. Ltd.

The political risk cover is available only in the case of buyers outside India and in respect of those countries agreed upon, according to the Irdai circular. Political risks include operation of a law or an order restricting the transfer of payment from the buyer’s country to India. They also include war between the buyer’s country and India and civil war, rebellion, revolution, insurrection or other disturbances in the buyer’s country.

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