IFFCO-Tokio General Insurance has introduced a new insurance product called Surety Bond Insurance, which aims to provide a risk mitigation solution for the infrastructure sector. This launch comes after the Insurance Regulatory and Development Authority of India (IRDAI) permitted general insurers to issue surety insurance bonds in April 2022. The Surety Bond Insurance is a legally enforceable tripartite contract that provides a hedge against the risks involved in infrastructure projects.
In the past decade, India has initiated over 9,000 Public-Private Partnership (PPP) infrastructure projects worth Rs 68.13 lakh crore. However, many contractors face financial constraints, particularly with regard to the limits required under India’s bidding and other processes. This is where Surety Bond Insurance comes in, providing relief to contractors and freeing up their financial burden.
The Surety Bond works as a risk transfer mechanism, where the insurer provides a guarantee to the beneficiary or obligee that the principal or contractor will meet their contractual obligations. If the principal fails to deliver, the insurer pays a monetary compensation to the obligee. To provide this guarantee, the insurer assesses various factors, including the project type, revenue, past records, and financial health of the contractor.
The construction industry has already provided bank guarantees worth Rs 1.70 lakh crore, and this figure is expected to grow to Rs 3 lakh crore by 2030. The introduction of Surety Bond Insurance is expected to support this growth by providing an alternative to traditional bank guarantees. According to Subrata Mondal, MD and CEO of IFFCO-Tokio General Insurance, this product will help widen the pool of contractors and make it easier for them to participate in infrastructure projects.
Overall, the launch of Surety Bond Insurance by IFFCO-Tokio General Insurance is a significant development in the insurance industry, and it is expected to play a crucial role in supporting the growth of the infrastructure sector in India. The product is designed to provide a risk mitigation solution for contractors and help them overcome financial constraints, making it easier for them to participate in infrastructure projects and contribute to the country’s economic growth.