Irdai publishes guidelines on surety insurance industry

Surety insurance concerns the contract for the performance of the promise or the discharge of the liability of a third party in the event of default.

Regulator Irdai on Monday issued guidelines to ensure the orderly development of the insurance and bond market.

The IRDAI (Surety Insurance Contracts) guidelines, 2022 will come into force on April 1, 2022, the regulator said in a notification.

Surety insurance concerns the contract for the performance of the promise or the discharge of the liability of a third party in the event of default.

As per the guidelines, bond contracts will include an advance payment bond, bid bond, contract bonds, customs and court bonds, performance bonds, and holdback.

Insurers will be required to have a board approved underwriting philosophy for surety insurance business.

Surety bonds protect the beneficiary against acts or events that undermine the underlying obligations of the principal. Bonds guarantee the performance of a variety of obligations, from construction or service contracts, to licenses and to commercial enterprises.

“Surety insurance contracts can be offered to government / private infrastructure projects in all modes,” the guidelines say, adding that apart from contractual bonds, insurers can take out customs or tax bonds and bonds. legal guarantees.

In addition, the warranty limit should not exceed 30 percent of the contract value.

According to the guidelines, “surety insurance contracts should only be issued for specific projects and not for multiple projects” and “the insurer should not issue surety insurance contracts on behalf of its promoters / promoters. their subsidiaries, groups, partners and related parties ”.

In addition, contracts should not be issued when the underlying asset or liability is / is outside the country, said the Insurance Regulatory and Development Authority of India (Irdai).

The guidelines follow the recommendations of a working group set up by the regulator to suggest measures to promote surety insurance activities in the country.

The working group had suggested that surety bonds be accepted as an alternative form of guarantee by the Reserve Bank of India (RBI) and government departments and accordingly reflected in the appropriate contractual documents.

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