ITFA’S INSURANCE GUIDELINES TO ''SHAKE THE MARKET'' - Shannon Manders, Global Trade Review (GTR) Editor

The International Trade & Forfaiting Association (ITFA) has published guidelines on the use of non-payment insurance policies. The ''guidelines on structure and content for CRR compliant non-payment insurance policies” were drafted by the association’s insurance committee and launched at ITFA’s annual conference in Warsaw last month. The documentation came about in response to a survey conducted by ITFA among its members last year.

In the survey, members called for guidelines concerning the use of non-payment insurance as an eligible unfunded credit protection to credit risk mitigation under the EU Capital Requirements Regulation (CRR) No 575/2013.

''For bank members, these guidelines are intended to provide a summary as to how the provisions of a non-payment insurance policy may comply with CRR,''reads the introduction to the guidelines.

''This document should be considered guidance only: there is no ‘standard’ wording for non-payment insurance and each insurance contract will be tailored to mirror the underlying payment obligations,'' the document explains. It adds that guidelines do not constitute legal advice.

Over the past six months or so we’ve seen some particularly poor wording,” says Geoffrey Wynne, trade finance partner and head of the London office of Sullivan & Worcester, speaking on the sidelines of the ITFA conference.

“The guidelines will help shake up the market – the insurance market in particular. There may well be at the moment some dinosaurs saying: 'It’s ok – I read that I can opt out, therefore you can have my same poor quality policy wording because I’m not changing it.' But in a market which has overcapacity, why would you, as a broker, go to an insurer who will not listen to the need to make change?''

The guidelines also provide an indication of what policy wording may be required in light of the new Insurance Act (IA) 2015, which came into effect in mid-August 2016.

IA applies to all contracts of insurance and reinsurance (or variations to current contracts) subject to UK law – covering the laws of England, Wales, Scotland and Northern Ireland – underwritten on or after August 12.

Wynne calls IA 2015 a ''revolution''. ''It is restoring a balance that, for the best part of 100 years, was in favour of the insurer, which had a lot of people in banks saying: ''There’s no point in taking insurance – they don’t pay.’ This reverses that,'' he says.

''Non-payment insurance is now a good product: that’s the message to get across. The fact that there are more players and there is more capacity is good news, because I think we will see more and more good use of insurance,'' Wynne adds.

According to Katie Fowler, a member of the ITFA insurance committee, the guidelines will target new entrants to the market – of which there are many – as these will benefit the most from the guidelines.

Sullivan & Worcester provided legal advice to the ITFA drafting group.

ITFA formally launched its insurance committee at its 2015 annual conference.