India Insurance Regulatory Development Authority (IRDAI) has revised Trade Credit Insurance Guidelines to promote sustainable and healthy development of business and improve economic stability by labeling trade losses due to payment risk. Was issued. The code will come into effect on November 1st.
“These guidelines apply to all insurance companies that trade non-life insurance businesses registered under the Insurance Act of 1938, although ECGC Ltd (formerly Export Credit Guarantee Corporation of India Ltd) has stated that these guidelines apply. You are exempt from the guidelines, “says Irdai Circular. ..
Trade credit insurance protects companies from the risk of non-payment of goods and services by buyers. This typically covers the buyer’s portfolio and covers an agreed percentage of one or more invoices that remain unpaid as a result of long-term defaults, bankruptcy / bankruptcy. It contributes to the country’s economic growth by promoting trade and helps improve economic stability by dealing with trade losses due to payment risk.
According to Irdai’s notice, the scope of trade credit insurance contracts is the underlying trade transactions, that is, credit risk directly related to the provision of goods and services. If no such direct link exists, the unpaid amount will not be insured under the trade credit insurance policy. Compensation may include, but is not limited to, the following risks:
> Buyer bankruptcy or long-term default. The bank responsible for payments in the case of letter of credit transactions. In the case of consignment transactions, a stock holding agency.
> Refusal by buyer after delivery, subject to terms and conditions. Buyer before shipping. The goods are manufactured according to the buyer’s requirements or are manufactured exclusively and may not be sold elsewhere.
> No payment was received due to the recovery of the bank’s bankruptcy.
Sanjay Kedia, Country Head and CEO of Marsh India Insurance Brokers Pvt Ltd, said: This provides insurance protection for not only suppliers, but also licensed banks and other financial institutions, managing national political risk, opening access to new markets and reducing non-payment risk associated with trade finance portfolios. You can manage it. “
Political risk compensation is only available for purchasers outside India and for agreed countries. Political risks include:
> Operation of any law or order, decree, or regulation that prevents, limits, or controls the transfer of payments from the buyer’s country to India in situations outside the control of the insured and / or the buyer. ..
> An outbreak of war between the buyer’s country and India.
> The occurrence of war, hostility, civil war, rebellion, revolution, riots, or other turmoil in the buyer’s country.
> Imposition of laws or orders, statutes or regulations in force that prevent the import of goods into the country of the purchaser in situations outside the control of the insured and / or the purchaser.
> Cancellation of import rights for previously issued and currently valid goods, under the control of the insured and / or the purchaser, in accordance with Irdai’s notice.
> For goods shipped from India, additional handling, transportation, or insurance premiums are incurred due to interruptions or detours of voyages outside India that are not practical to be collected from the purchaser.
> Other causes, except when selling exports, exclude this risk. This occurs from an event that has occurred outside India but is not specific to the nature of the product or is under control. Those that are explicitly excluded from the scope of the insurance policy according to the insured and / or purchaser, or Irdai’s circulation.
“This move to support the insurance-covered factoring business will unleash the enormous value of the balance sheet, especially as accounts receivable for SMEs / MSME sectors,” said Kedia. You will be able to invest, because trade credit insurance contracts will allow you to monetize your accounts receivable. “
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