Credit insurers are being wary after the firing of the New India Assurance chairman for providing credit insurance to private airline ‘Paramount Airways’ without enough reinsurance cover.
Credit insurance is generally bought by companies to insure the credit that they have to pay off to their lenders. It is still a small business in India with a calculated underwritten premium of Rs. 300-350 crore for fiscal year 2010-11.
Paramount Airways got a credit risk cover from Oriental Insurance, which was utilized by the company as a surety to get bank loans. When Paramount was not able to repay loans of Rs. 400 crore, the liabilities burden came down to Oriental Insurance as a claim. Oriental Insurance also had no reinsurance cover.
IRDA has now prohibited all forms of credit insurance. This event has made the credit insurers more cautious.
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