IRDAI’s working committee recommended enhancing trade credit policy (TCI) cover to 90% from 85%

Insurance Regulatory and Development Authority of India (IRDAI) formulated nine-member expert panel headed by New India Assurance (NIA) Chairman & Managing Director (CMD) Atul Sahai has recommended an increase in  indemnity (protection against finances) being provided to the policyholders under Trade Credit Insurance (TCI) from existing 85% of the trade receivables from each buyer to 90%.

For Micro and small enterprises (MSEs), 95% indemnity is proposed to provide relief in the event of loss which is beyond their control.

The recommendations are aimed at improving the overall business environment by protecting suppliers as well as lenders against payment defaults.

Other recommendations:

-Permitting issue of TCI policy to banks, financiers, lenders for trade-related transactions, except for covering loan default of seller. At present, they cannot avail the policy.

-Modifications in certain definitions for improved clarity and understanding.

-Adding new options in the policy, including a provision of single-buyer risk covers only for MSEs.

-Creation of a Buyer Default Database with Insurance Information Bureau (IIB) as a measure to keep a check on defaulters.

-Reserve Bank of India (RBI) to recognise credit insurance products as risk mitigation tools for banks to make them eligible for capital relief.

The recommendations are open for comments till June 3.

About TCI:

Introduced in 2016, TCI is an effective risk management tool for the suppliers of goods and services and other financial institutions, to facilitate and promote trade by addressing issues concerning losses arising from payment related defaults.

Need for change in TCI guidelines:

The existing TCI guidelines do not allow the insurance companies to offer full-fledged benefits to suppliers and restrict covers to banks and financial institutions. To overcome this situation and also to cater with the changing pattern of trade, IRDAI had instituted a working group to revisit the existing guidelines on Trade Credit Insurance.

Source: Affairs cloud