Trade credit insurance: Firms likely to be ready by early next year

Companies are gearing up for trade credit insurance covers, the guidelines for which will come into effect from November 1, and believe that this will improve liquidity for micro, small and medium enterprises.

A number of insurance companies are understood to be already working on draft agreements and products and they are expected to be fully prepared by early 2022.

“Acting on the regulatory changes governing credit insurance, we are making revisions to conventional credit insurance to further enhance our trade credit insurance (TCI) solution. By early next year, we will also be ready to offer digital solutions for credit platforms and support MSME needs with new insurance features. The security of insurance will be available from Tata AIG for banks, financial institutions, factoring companies and TReDS platforms,” said Sushant Sarin, President and Head – Commercial Lines, Tata AIG General Insurance.

Tata AIG is the largest private sector credit insurer in the country and it plans to provide insurance for specialised risks such as long term projects, buyer rejection (pre and post-delivery) with the ability to customise terms based on clients’ needs.

Previously, Receivables Exchange of India (RXIL) had initiated a TCI-backed transaction with Tata AIG General Insurance as the insurer and ICICI Bank and Yes Bank as the financiers in a sandbox environment.

“The new TCI guidelines have come at the right time. The Factoring Regulation (Amendment) Act, 2021 allows NBFC as Factors. Once RBI amends TReDS guidelines to allow NBFCs as financier on the platform, it will increase the liquidity on the platform and the financiers will have a risk-sharing partner,” said Ketan Gaikwad, Managing Director and CEO, RXIL.

Gaikwad said that RXIL has already applied to the Reserve Bank of India for approval and will also take board approval soon.

IRDAI guidelines

The Insurance Regulatory and Development Authority of India, in September, had announced guidelines for trade credit insurance cover to enable general insurance companies to offer these covers to suppliers as well as licensed banks and other financial institutions to help businesses manage country risk, open up access to new markets and to manage non-payment risk associated with trade financing portfolio.

General insurers can also offer trade credit insurance with customised covers to improve businesses for SMEs and MSMEs, considering the evolving insurance risk needs of these sectors.

Arun Poojari, CEO, Cashinvoice, which is a digital supply chain finance marketplace, noted that a lot of pilots are taking place on these covers.

“There is a testing which is happening with an insurance company on the Cashinvoice platform. By nature this is a very powerful proposition and is bound to be accepted in a big way in the coming days,” he said.

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