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Thursday, September 23, 2021

Surety insurance cover limit set at 30% of project value: IRDAI

The guidelines once approved and implemented promise to address the high funding requirement for construction and infra companies.

By: ENS Economic Bureau | Mumbai |
Updated: September 11, 2021 1:00:09 am
Surety insurance contracts cannot be issued where the underlying assets or commitments are outside India.

The Insurance Regulatory and Development Authority of India (Irdai) has said the limit of guarantee under surety insurance contracts should not exceed 30 per cent of the project value. Also, the contracts should be issued only to specific projects and not clubbed for multiple ones.

The guidelines once approved and implemented promise to address the high funding requirement for construction and infra companies.

Surety insurance contracts may be offered to construction companies in India that cover road projects, housing/commercial buildings and other infrastructure projects of the government and the private sector, Irdai said while unveiling the draft Irdai (Surety Insurance Contracts) Guidelines, 2021. “The contract bonds may include bid bonds, performance bonds, advance payment bonds and retention money. Apart from contract bonds, the insurers may underwrite customs or tax bonds and court bonds,” it said.

Surety insurance contracts cannot be issued where the underlying assets or commitments are outside India.

Surety insurance is defined as a contract, in which an insurer provides a guarantee to a beneficiary that the principal will meet its contractual obligations or that a monetary compensation is paid to the obligee, if the principal fails to deliver on its promise. “… The guideline permits insurers and surety solution companies to work along with other financial institutions to share risk, technical expertise and take part in large underwritings. A new segment of the business will need such handholding by the government…,” said Vikash Khandelwal, CEO, Eqaro Guarantees.

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