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IRDAI Panel proposes increase in trade credit insurance cover

May 28, 2020

A working group formed by the insurance regulator IRDAI has proposed several changes to improve the credit insurance market and meet the requirements of various stakeholders involved in trade related transactions.

It has recommended an increase in the indemnity from the existing 85% of the trade receivables from each buyer to 90%, which is in line with global standards. For micro and small enterprises (MSEs) specifically, it proposes a 95% cover for losses.

The committee has also recommended modifications to certain trade credit insurance definitions for improved clarity and understanding, while also suggesting the inclusion of new options in the insurance policy, like a single-buyer risk cover only for MSEs.

The working group has also recommended the establishment of a Buyer Default Database with Insurance Information Bureau as a measure to keep a check on defaulters and improve risk mitigation. At the same time, it suggests that the Reserve Bank of India recognize credit insurance products as risk mitigation tools for banks so as to make them eligible for capital relief.

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