Irda Bans Credit Default Insurance

Irda Bans Credit Default Insurance

Credit Insurance Plans have been put into a complete ban by IRDA as it was being practiced rampantly by some non - life insurers. Credit Insurance is a indulgent of cover or guarantee to the lender against payment default by borrowers. IRDA has ordered all general insurers to stop selling credit insurance plans until any further huge note is issued by them in this regard.


Since only a smallish number of loans transact credit risk protection, the benchmark is unlikely to increase the total credit risk of banks. The Authority has also asked for details of total exposure of the insurer underneath the credit insurance plans issued by them to the banks offering credit facility to the debtors. The credit insurance that is being marketed by the several insurers is better termed as credit default insurance. Its in conclusion a security cover which provides protection to the borrower of a loan against the inability to repay the loan.

A pullulating case of credit insurance cover which resulted in a claim is that of the state - owned insurer Oriental Insurance Company selling comparable a cover to Tough Airlines. The insurer provided cover to the airlines lenders from different branches to the tune of INR 200 crores. Several state - owned lenders have an exposure to the company, which along with other nervous airlines are trying to restructure its debt.

Recently, some scam also came into bear down wherein shameful brokers were calculating with borrowers. The broker armed with a letter from a international reinsurer itemizing it is keen to produce reinsurance underwriting support, along with the borrower would approach an insurance company for credit insurance cover. Reinsurance support is in agreement to loan syndication where abysmal - pocketed underwriters share the credit risk. When there used to be a claim, the insurance company discovered there were problems with the technicalities in the contract which allowed the international reinsurer to escape liability and the local insurer was uncherished with the claim.

When compared, credit insurance is fairly analogous to credit default swaps which earlier brought down the international insurer AIG. Get more info and also compare insurance quotes.