LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link

Surety insurance bonds are adding a level of sophistication to India’s insurance sector while strengthening infrastructure development and the economy at large. Puneet Gupta and Akash Singh examine this insurance product and the steps needed to sustain it

The Noble Prize in Physics in 2022 was awarded to Alain Aspect, John Clauser and Anton Zeilinger “for experiments with entangled photons”. This is a state where two particles behave like a single unit, even when they are separated. What happens to one of the particles in an entangled pair determines what happens to the other, even if they are far apart.

Beyond quantum physics, we might apply the same state of existence to the insurance sector and the economy of a country. India is taking big strides and striving to become a USD5 trillion economy by 2025. The insurance sector is naturally responding.

For instance, private health insurance coverage could help the government save on healthcare expenditure; better crop insurance coverage can ensure compensation for crop damages and thereby reduce loan defaults; and surety insurance can help to increase liquidity for contractors and provide a boost for building and infrastructure projects. In short, the risk management offered by insurance will offer financial stability and peace of mind to individuals and businesses wanting to take the greater risks that will bolster the country’s economic development.

Puneet Gupta
Puneet Gupta
Assistant vice president, legal
Max Life Insurance

Insurance and economic growth are in an entangled state. That insurance will play an important role in economic growth was highlighted in the launch of the first surety bond insurance from Bajaj Allianz General Insurance Company in December 2022. This was followed by the launch of New India Assurance’s surety insurance in March 2023, offering more choices to the customers and opening the market for healthy competition.

The launch of new surety insurance products will aid in the execution of infrastructure projects at a faster rate. This will especially expand the road network, which will lead to greater prosperity, increased employment opportunities, better social connectivity, and overall economic and social growth of India. With the new leadership at the Insurance Regulatory and Development Authority of India (IRDAI) taking a proactive approach, the effects of insurance on business are starting to find applications.

There is now a large array of offerings touching on different aspects of business, namely: surety insurance; title insurance (or property insurance); and trade credit insurance. There are also changes in the insurance distribution ecosystem.

This article explores surety insurance, and in future articles the authors will look at title insurance, trade credit insurance and other developments.

Concept of surety bond

Akash Singh
Akash Singh
Senior manager, legal
Max Life Insurance

A surety bond is a tri-party agreement that legally binds a principal who demands the bond, an obligee who requires the bond because of an existing demand, and a surety company that issues the bond. Surety bonds provide a financial guarantee that an agreement will be fulfilled according to pre-defined and mutual terms. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses.

In large construction or infrastructure projects, the bank guarantee/surety bond is a contractual requirement or precondition to awarding an order to the contractor. In case the contract is not honoured, the bank/insurance company is called on to pay the bond or otherwise assure the finalisation of the contractual obligation. The performance bonds issued may cover up to 20%, or sometimes guarantee 100%, of a project’s value.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.

你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章,欢迎成为我们的订阅会员成为我们的订阅会员

已有集团订阅,可点击此处继续浏览。
如对集团订阅感兴趣,请联络我们


PUNEET GUPTA is the assistant vice president, legal, and AKASH SINGH is a senior manager, legal, at Max Life Insurance.

LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link