Page 57 - Insurance Times November 2023

(i) All General Insurers carrying on motor insurance busi- such as TReDS. However, it restricts cover against reverse
ness shall provide the cover to the employees travel- factoring transactions to participate as “Fourth Partici-
ling in employer’s vehicle (including paid driver, if appli- pant" in TReDS.
cable) under IMT-29 of the Indian Motor Tariff, com-
4. In view of the fact that through “reverse factoring”, the
pulsorily as an inbuilt coverage while issuing private car
financiers can take exposure on low rated or unrated
policy for such vehicles. buyers provided the default risk is hedged with insurers
(ii) The compulsory cover of IMT-29 shall be provided as an by taking Trade Credit Insurance cover, therefore, in
inbuilt coverage under the Compulsory Motor Third order to facilitate “reverse factoring” transactions on
Party Liability Section of Private Car Package/ Bundled TReDS platform, para 5.3A of the guidelines will be now
Policies and under standalone policies insuring Compul- read as “(a) Reverse Factoring (except on TReDS plat-
sory Motor Third Party Liability. forms)”.

(iii) No additional premium shall be charged until further 5. All the other provisions and requirements of Trade Credit
directions. Insurance Guidelines 2021 shall remain unaltered.

This is issued with the approval of the Competent Author- 6. This circular shall come into force with immediate effect.
ity.
Amendment to Circular dated 19th April,
Trade Credit Insurance Guidelines, 2021 - 2023 on Procedure for Implementation of
Modification to Guideline 5.3A – allowing Section 12A of ‘The Weapons of Mass De-
“reverse factoring” on TReDS platforms struction and their Delivery Systems (Pro-

09.10.2023 hibition of Unlawful Activities) Act, 2005

1. The Authority issued guidelines on trade credit insurance (WMD Act)
in September 2021 to protect business against the risk
09.10.2023
of non-payment for goods and services by buyers. The
Guidelines set out the regulatory framework that facili- 1. IRDAI issued circular ref. IRDAI/IID/CIR/MISC/86/4/2023
tated trade credit insurance covers to suppliers as well dated 19th April 2023 on the captioned subject wherein
as to banks and other financial institutions. It also pro- Order dated 30th January 2023 of Department of Rev-
vided customised covers to improve businesses for SMEs enue specifying the procedure for implementation of
and MSMEs. Section 12A of The WMD Act was provided as Annexure
2. RBI in order to ease constraints faced by MSME, in con- I.
verting their trade receivable to liquid funds, issued guide- 2. Department of Revenue (DoR) has issued revised order
lines in July, 2018 for the trade receivable discounting ref. F. No-12011/14/2022-ES Cell-DoR dated 1st Septem-
system (TReDS). Based on experience gained, RBI in June ber, 2023 in supersession of order dated 30th January,
2023 decided to permit insurance facility for TReDS trans- 2023.
actions, which would aid financiers to hedge default risk, 3. Accordingly, the circular stands modified as under:
thereby allowing insurance companies to participate as
i. Clause 2 of the circular stands substituted as under:
“fourth participant” in TReDS and undertake “reverse
factoring”. In order to ensure expeditious and effective imple-
mentation of the provisions of section 12A of the
3. In light of the steps taken by RBI, IRDAI examined the
feasibility of Trade Credit Insurance cover against “re- WMD Act, the Department of Revenue specified the
procedure for implementation of the within referred
verse factoring” transactions on TReDS platforms. Trade
provisions vide Order F. No. P- 12011/14/2022-ES Cell-
Credit Insurance cover is provided to the financiers to
DoR dated 1st September, 2023.
cover default of the buyer against the invoices financed
on TReDS platform. IRDAI (Trade Credit Insurance) Guide- ii. Clause 3 of the circular stands substituted as under:
lines, 2021 allows single Invoice covers through bill dis- The copy of the Order is enclosed as Annexure I.
counting / factoring on Invoice discounting e-Platforms

52 November 2023 The Insurance Times