The Insurance Regulatory and Development Authority of India has published revised guidelines on Trade Credit insurance on 8th September 2021. The guidelines shall come into force from November 1, 2021.
Key highlights of the revised guidelines are:
- The guidelines set out the regulatory framework to:
- promote sustainable and healthy development of trade credit insurance business
- facilitate general insurance companies to offer trade credit insurance covers to suppliers as well as licensed banks and other financial institutions to help businesses manage country risk, open up access to new markets
- to manage non-payment risk associated with trade financing portfolio.
- These guidelines shall be applicable to all insurers transacting general insurance business, registered under the Insurance Act, 1938. The ECGC Ltd (formerly Export Credit Guarantee Corporation of India Ltd) is exempted from the application of these guidelines.
- A trade credit insurance for Banks / Financial Institutions and Factoring Companies shall cover the loss on account of non-receipt of payment from a buyer, due to commercial or political risks, against the bills / invoices purchased or discounted and it shall be issued for covering trade related transactions other than loan default of seller.
- A trade credit insurance policy shall not cover a) Reverse Factoring; b) Government Buyers except for political risks in overseas under export transaction. c) Financial Guarantee in any form d) Any other risk cover that may be specified by the Authority from time to time.
- A trade credit insurance policy shall cover only receivables arising from transactions made under trade credit transaction.
- Every Insurer shall have an Underwriting and Risk Management Policy approved by Board, in addition to the underwriting policy prescribed under Guidelines on Product Filing Procedures for General Insurance Products which shall be filed with the Authority.
- The insurer shall have a “Claims Manual” which will illustrate how the claims shall be processed, documentation, delegation of authority, policy holders servicing, grievance redressal etc.
- Contravention of the any of these Guidelines shall invite penal action under the provisions of the Insurance Act, 1938 which includes prohibiting insurer against entering into any new or particular trade credit insurance business transaction after giving the insurer an opportunity of being heard.
*Tanvi Singh, Editorial Assistant has reported this brief.