The Insurance Regulatory and Development Authority of India (IRDAI) has issued draft proposals on a regulatory framework to facilitate general insurance companies to offer trade credit insurance cover to suppliers, licensed banks and other financial institutions to help businesses manage country risk.

Risks in letter of credit (L/C) operations are contemplated in the proposals that aim to motivate insurers to come up with trade credit insurance products with customised cover for micro- small- and medium-sized enterprises.

Scope

The proposals say the framework will cover credit risk directly linked to an underlying trade transaction or to the delivery of goods or services.

The cover may include but not be limited to commercial risks and political risks.

L/C transactions

Commercial risks include insolvency or protracted default of the buyer and the failure of banks to meet their obligations in L/C transactions.

Political risk cover will only be available to buyers outside India and countries agreed upon at the proposal stage.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.