The Insurance Regulatory and Development Authority of India (IRDAI) on Wednesday has revised the guidelines on Trade Credit insurance which shall be effective from 1st November 2021.
These guidelines set out the regulatory framework to promote sustainable and healthy development of trade credit insurance business; to 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 and to manage non-payment risk associated with trade financing portfolio; to enable general insurance companies to offer trade credit insurance with customised covers to improve businesses for the SMEs and MSMEs, considering the evolving insurance risk needs of these sectors.
A trade credit insurance policy shall not cover any receivable arising from transactions made other than trade credit transaction.
Trade credit insurance protects businesses against the risk of non-payment for goods and services by buyers. 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, insolvency/bankruptcy. It contributes to the economic growth of a country by facilitating trade and helps in improving economic stability by addressing the trade losses due to payment risks.