Prodded by the the Ministry of Road Transport and Highways((MORTH) the segment regulator IRDAI, on Wednesday, has formed a panel under G. Srinivasan, director, National Insurance Academy, to assess the suitability of the Indian insurance industry or any other sector to offer Surety Bonds in the country. ..
Currently, Surety Bond for contractors is not being offered by insurance companies in the Indian market to guarantee satisfactory completion of a project by a contractor and providing performance security to various government agencies.
Due tothe COVID 19 pandemic and consequent economic impact on liquidity and cash flow issues in the Indian Banking sector, the Ministry of Road Transport and Highways (MORTH), Government of India, has requested to examine possible offering of Surety Bond by the general insurance companies.
The current insurance legal/ regulatory framework does not permit underwriting of Bonds that guarantee performance and bid securities as they are financial instruments and not conventional insurance products.
The banks have been issuing Bank Guarantees to contractors for fulfilling contract security and performance pledges.
Some of the other members of the panel are:Hitesh Kotak, CEO, Munich Re, India,Shankar Garigiparthy, CEO, Lloyd’s Indiam Neelesh Garg, CEO, Tata AIG General Insurance,Roopam Asthana, CEO, Liberty General Insurance , S. N. Jayasimhan, General Manager, Investment Department, IRDAI,
The terms of reference of the Working Groupare are:.
To study the current Indian legal and regulatory framework with reference to Surety Bonds, to provide justification for the recommendations being made by the group, with special reference to the legal and regulatory perspective.
The IRDAI wants working group to have its meetingsthrough onlinemode in view of COVID-19 pandemic and make its recommendations within three months
Surety Bond explained
In finance, a surety, surety bond or guaranty involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults A surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).It is is defined as a three-party agreement that legally binds together a principal who needs the bond, an obligee who requires the bond and a surety company that sells the bond. If the principal fails to perform in this manner, the bond will cover resulting damages or losses.