To make these projects a reality, India needs to widen the contactors’ pool, who face fund issues, especially with regard to limits that are required under India’s bidding and other processes, said IFFCO-Tokio General Insurance MD and CEO Subrata Mondal
New Delhi: IFFCO-Tokio General Insurance has launched Surety Bond Insurance — a risk mitigation solution to support infrastructure sector.
The Insurance Regulatory and Development Authority of India (IRDAI) had permitted general insurers to issue surety insurance bonds in April 2022.
The bonds are legally enforceable tripartite contracts that seek to provide hedge against risk involved with infrastructure projects, IFFCO-Tokio General Insurance said in a statement.
In the last decade, India initiated 9,242 Public-Private Partnership (PPP) infrastructure projects amounting to Rs 68.13 lakh crore.
To make these projects a reality, India needs to widen the contactors’ pool, who face fund issues, especially with regard to limits that are required under India’s bidding and other processes, said IFFCO-Tokio General Insurance MD and CEO Subrata Mondal.
This is where Surety Bond insurance provides respite to contactors and frees up financial burden on them, he said.
Surety Bond works as a risk transfer mechanism, and under Section 126 of the Indian Contract Act, 1872 it is treated as a contract of guarantee.
Under this contract, the insurer provides guarantee to the beneficiary or obligee that the principal or contractor will meet his contractual obligations. In case the principal fails to deliver his promise, a monetary compensation is paid to the obligee by the insurer.
The insurer assesses a number of essentials of principal (contractor), such as project type, revenue, past records, financial health etc. to provide guarantee (Surety Bond).
The construction industry alone has already offered bank guarantees (BGs) of Rs 1.70 lakh crore so far, and this figure is projected to grow to Rs 3 lakh crore by 2030.