The Ministry of Road Transport and Highways has asked IRDAI to develop a model bond product in consultation with general insurers, so that the new line of business can start.
Rules and regulations for surety bonds, as prepared by the Indian government and IRDAI, have already been in place since April 1, it said. The Indian Express. Surety bonds should be offered as an alternative to bank guarantees in various ventures such as infrastructure projects.
However, the general insurance industry wants changes to Indian contract law and the Insolvency and Bankruptcy Code (IBC) so that surety bonds can be on par with bank guarantees in terms of concerns the remedies available to them in the event of default.
The Minister of Road Transport, Mr. Nitin Gadkari, met with the CEOs of some general insurance companies and an official from IRDAI to discuss the issue. The Minister proposed to IRDAI that the insurance regulator develop a model product with all the basic characteristics.
“Insurers can still improvise the product depending on their capacity and based on reinsurance support,” said the CEO of a general insurance company, who had attended the meeting.
Aiming to support the implementation of large scale project finance especially in the area of National Highway Authority of India (NHAI) road projects, Finance Minister Nirmala Sitharaman in her Union Budget 2022-23 , said bidders for government projects could provide bonds instead of much more expensive bank guarantees, thereby improving the viability of their bid.
What general insurers say
“As surety is an entirely new line of business, insurance companies would need clarity on various aspects such as pricing, remedies available against defaulting contractors, reinsurance options and global best practices” , said an industry executive.
“As an industry, we urge regulators to facilitate changes in laws such as the Indian Contracts Act and the IBC and to put surety bonds on par with bank guarantees regarding remedies available to issuers. . This will help the industry approach bonding solutions with much more confidence, but it will be even more of a viable proposition for all stakeholders,” he said.