Union Minister for Road Transport and Highways Nitin Gadkari
“ It has taken almost three years to get IRDAI’s approvals for Surety Bond product. We have sorted out a lot of technicalities which will make constructing road projects less risky and ensure safety and profitability of Surety Bonds for insurers. The Surety Bond will also help contractors to have financial closure of their projects without depending upon only bank guarantees. As more players enter Surety Bond market, premiums for the products will also fall. I will ensure use of Surety Bonds in many other segments across the country. I am also proposing to introduce a rating system for contractors who are doing road projects,” said Union Minister for Road Transport and Highways Nitin Gadkari
New Delhi:
Union Minister for Road Transport and Highways Nitin Gadkari launched one of India’s first-ever Surety Bond Insurance product issued by private sector major Bajaj Allianz General Insurance(BAGI) for projects of National Highway Authority of India (NHAI).
“It has taken almost three years to get IRDAI’s approvals for Surety Bond product.We have sorted out a lot of technicalities which will make constructing road projects less risky that make Surety Bond a safe and profitable business for insurers. The Surety Bond will also help contractors to have financial closure of their projects without depending upon only bank guarantees. As more players enter Surety Bond market, premiums for the products will also fall. I will ensure use of Surety Bonds in many other segments across the country. I am also proposing to introduce a rating system for contractors those who are undertaking infrastructure projects,” said Gadkari.
Commenting on the product launch, Gadkari said “India is well on its path to becoming a $ 5 Trillion economy and insurance will play an important role in this growth. It is important that infrastructure projects are executed at a faster speed. Infrastructure notably roads, are vital to the economic and social growth of our country.”
With this new instrument of Surety Bonds, the availability of both liquidity and capacity will definitely be boosted; such products stand to strengthen the sector, said Gadkari.
“We are confident that expanding our road network will lead to more prosperity, increased employment opportunities, and increased social connectivity. Surety Bond Insurance is the right step in this direction, I am glad to see that BAGI has taken the great initiative by launching this important product,” he added.
Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance, said, “Surety Bond Insurance will prove to be an effective tool for the industry and will allow contractors to take up more projects as the product will help them optimize capital.”
BAGI’s Surety Bond has been largely reinsured by Swiss Re and Munich Re.
More general insurers like New India Assurance, ICICI Lombard General Insurance and , SBI General Insurance are planning to launch Surety Bonds with the major supports from reinsurers like Munich Re, Swiss Re and SCOR.
Surety Bond Insurance will act as a security arrangement for infrastructure projects and will insulate the contractor as well as the principal. The product will cater to the requirements of a diversified group of contractors, many of whom are operating in today’s increasingly volatile environment.
The Surety Bond Insurance is a risk transfer tool for the principal and shields the principal from the losses that may arise in case the contractor fails to perform their contractual obligation.
The product gives the principal a contract of guarantee that contractual terms and other business deals will be concluded in accordance with the mutually agreed terms.
In case the contractor doesn’t fulfil the contractual terms, the principal can raise a claim on the surety bond and recover the losses they have incurred.
Unlike a bank guarantee, the Surety Bond Insurance does not require large collateral from the contractor thus freeing up significant funds for the contractor, which they can utilize for the growth of the business.
The product will also help in reducing the contractors’ debts to a large extent thus addressing their financial worries. The product will facilitate the growth of upcoming infrastructure projects in the country.