Page 9 - The Insurance Times May 2021

by these regulations in so far as non- The political risk cover will be available However, insurers are barred from
health covers/sections are concerned." only to buyers outside India and investing in fund of funds that invest in

Further, it says the design of products countries agreed upon at the proposal overseas companies or funds, IRDAI
stage. The commercial risks covered said in a circular modifying the
should take into consideration the
policyholders' interests in terms of would include risk of insolvency or guidelines for alternative funds or AIFs.
suitability and affordability even while protracted default of a buyer or bank The insurance regulator also barred
responsible for payment in case of
catering to their changing needs insurers from investing in alternative
letter of credit transactions, among
through evolving risk coverage. The investment funds in which the insurer
pricing of products/add-ons should others. A trade credit policy can grant has taken an exposure. Insurers will
generally be based on appropriate an indemnity of maximum 60% of also have to obtain a quarterly report
trade receivables from each buyer for
data and/or technical justification, the from a concurrent auditor about their
draft read. all banks, financial institutions or compliance with these conditions and
factoring companies.
It said, "Insurers, while pricing file it along with their quarterly
products/add-ons, have to factor in risk According to the guidelines, insurers periodical returns, the circular said.
can offer an indemnity of 90% of the
exposure, claim/loss experience, A fund of funds is essentially an
expenses, reinsurance, solvency trade receivables from each buyer for investment strategy of holding a
requirement, and factor in a all policyholders other than banks, portfolio of other investment funds
factoring companies, and financial
reasonable amount of surplus and/or rather than investing directly in stocks,
economic cost of capital." institutions. But for MSMEs, the policy bonds or other securities. In the
can cover 95% in case of political risks. context of AIFs, a fund of funds is an
IRDAI issues guidelines for Sanjay Datta, Chief - Underwriting, AIF that invests in another AIF.
Claims and Reinsurance, ICICI Lombard
trade credit insurance General Insurance, remarked, "The Anil Agrawal, Joint Secretary at the
Department for Promotion of Industry
products new draft guidelines on trade credit and Internal Trade, in a tweet,
IRDAI has recently issued draft insurance issued by IRDA today remarked, "This would lead to major
guidelines for general insurance envisage allowing banks, factoring mobilization of domestic capital for
companies to come up with trade companies and other financial investing into startups."
credit insurance products with institutions to buy credit insurance
customised covers for MSMEs and protection for their receivable IRDAI slaps Rs. 17 lakh fine
SMEs. financing programs. This will open up
opportunities to offer credit insurance- on Future Generali
The latest guidelines will also enable
backed financing solutions to MSMEs IRDAI has recently imposed a penalty
general insurers to offer trade credit
and large corporates. Other changes of Rs. 17 lakh on Future Generali India
insurance covers to licensed banks and
like enhanced indemnity of 90%, single Insurance Co Ltd for violating norms on
other financial institutions. These
buyer coverage for MSMEs and pre- protection of policyholders' interests
covers will help the financial
shipment risk coverage will make the and selling policies without seeking
institutions and companies manage
credit insurance product more prior approval from the authority. The
their risks overseas, open up access to
comprehensive." fine has been slapped on the insurer
new markets and manage non-
post an on-site inspection by the IRDAI
payment risks associated with trade
financing portfolio. Trade credit IRDAI allows insurers to during January 15-25, 2018, followed
insurance protects businesses against invest in startups via FOF by response from the insurer in
the risk of non-payment for goods and IRDAI has allowed the insurers to November, 2020 and personal hearing
services by buyers. invest in fund of funds that invest of the company's key personnel's in
January, 2021.
As per IDRAI's Trade Credit Insurance within the country, in a move that is
Guidelines 2021, the trade credit expected to open up more capital The inspection report revealed certain
insurance can cover commercial as options for India's burgeoning startup violations of provisions of the Insurance
Act regulations, guidelines and various
well as political risks, among others. ecosystem.

The Insurance Times, May 2021 9