India's Insurance Regulatory and Development Authority has stopped the sale of credit insurance by nonlife insurers due to reports of malpractice and inadequate information for the selling of the products.
Nonlife insurers sell credit insurance to banks offering credit facilities to debtors. IRDA said "it is observed that such covers appear to be in the nature of credit default insurance," and such covers need a different regulatory treatment.
"After examining the credit default insurance contracts IRDA has come to the conclusion that the insurers are underwriting risks which do not have proper regulatory framework or sanction," said IRDA, in a statement.
The regulator has ordered all nonlife insurers to stop selling credit insurance until the authority develops detailed guidelines. IRDA said it will seek details of total credit risk exposure of companies and information provided with credit insurance policies issued by nonlife insurers to banks.
The sanction does not apply to Export Credit Guarantee Corp. of India Ltd., a government-owned company that provides export credit insurance support to Indian exporters.
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