The Insurance Regulatory and Development Authority of India (Irdai) on Tuesday made significant changes to the norms governing ‘surety bonds, a type of insurance policy that protects parties involved in a transaction or contract from potential financial losses.
As per a circular issued by the IRDAI, the solvency requirement applicable for such products has now been reduced to control the level of 1.5 times from 1.875 times previously prescribed. Further, the prevailing 30 per cent exposure limit applicable on each contract underwritten by an insurer has also been removed.
Insurance companies offer a wide range of products like Advance Payment Bonds, Bid Bonds, Contract Bond (Contract bonds may include: Bid Bonds, Performance Bonds, Advance Payment Bonds, and Retention Money), Customs and Court Bond, Performance Bonds, Retention Money Bonds, etc. These bonds are similar to various types of guarantees issued by banks on behalf of their customers. However, no surety Insurance contract shall cover ‘Financial Guarantee’ in any form.
The relaxation of norms for surety bonds creates opportunities for insurers to offer these products to a wider range of sectors. With increased availability, various industries, including construction, manufacturing, real estate, and infrastructure, can benefit from the protective measures provided by surety insurance.
‘The objective of the amendments is to promote the growth of the surety insurance market and enhance the accessibility of these products’ the insurance regulator said.
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