IRDAI proposes changes in TCI norms

Insurance regulator IRDAI has proposed changes in guidelines on trade credit insurance. In an exposure draft on ‘Amendment to Guidelines on Trade Credit Insurance’, the regulator said changes in the economy, especially in micro, small, medium enterprise (MSME) sector, has increased the need for trade credit and has enhanced the scope for the credit insurance sector manifold.

IRDAI said it proposes to allow issuance of trade credit insurance policy to RBI registered entities, for conducting factoring business in line with The Factoring Act, 2011. This cover shall be restricted to short-term financing against receivables, representing supply of goods, materials and services, according to the draft.

As against the existing policy of net retention of the insurer for trade credit insurance of up to two percent of the net worth, IRDAI is proposing the same to be increased to up to five percent. Among others, the proposed changes include an indemnity of not more than 85 per cent of the trade receivables in a trade credit policy.