JOIN USSome pain points addressed in surety bonds: Irdai
Irdai chairperson Debasish Panda on Thursday said the insurance regulator has tried to address some of the "pain points" in relation to surety bonds, and stressed that it may make further changes if needed.
The surety bond insurance is a risk transfer tool for the principal and shields the principal from the losses that may arise in case the contractor fails to perform their contractual obligation.
The product gives the principal a contract of guarantee that contractual terms and other business deals will be concluded in accordance with the mutually agreed terms.
"We have tried to address some of the pain points. In case there is need for some tweaking, we will consider. Let industry come up with suggestions, we will examine them," Panda told reporters on the sidelines of a conference organised by industry body CII here.
On Wednesday, Minister for Road Transport and Highways Nitin Gadkari said the finance ministry has agreed to allow contractors engaged by state-owned NHAI and NHIDCL to convert their bank guarantees to insurance surety bonds from retrospective effect.
Recently, he had also said changes will be made to the surety bond offering to make it more lucrative as no contractor is buying it because of the strict conditions imposed by insurance regulator Irdai.
Replying to a suggestion on surety bonds made during the conference, Panda said Irdai has been working closely with insurers on it.
"One of them (pain points) we have recently removed...there was an additional layer of solvency requirements which we have removed now. "So from our side, I think we have done whatever we thought was appropriate. But I'm absolutely open to any more...suggestions, which will help this market grow and also help our infrastructure grow in this country," he said.
As per a circular issued by the Insurance Regulatory and Development Authority of India (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. The changes are aimed at expanding the surety insurance market by increasing the availability of such products. The regulator had issued 'Irdai (Surety Insurance Contracts) Guidelines' in January 2022.