New India Assurance, the largest non-life insurance company of the country, on Friday announced the launch of its surety bond business.
The state-run company became the second insurer to offer such bond in the country. Private sector general insurer Bajaj Allianz General Insurance had launched India’s first-ever surety bond insurance product in December last year. Insurance regulator Irdai permitted general insurers to issue Surety Insurance Bonds since April 2022.
Commenting on the launch, Neerja Kapur, chairman cum managing director, New India Assurance Co said, “Surety bonds will soon revolutionise the dynamics of India’s infrastructure industry. Surety bond insurance will act as a security shield for infrastructure projects and protect the interests of both the contractor and the principal. In today’s increasingly uncertain and volatile business environment, our surety bonds will provide much-needed financial reassurance to all parties involved in infrastructure projects.”
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“We aspire to grow in the surety insurance business in India and are geared up for it,” she added.
Surety bonds are legally enforceable tripartite contracts that guarantee compliance, payment and/or performance. The insurance company provides an underwriting guarantee, for a premium, in case of a default in execution of a project. It assures one party – the obligee, that the party responsible for project or service delivery – the principal, delivers on the project in a timely manner by adhering to the prescribed stipulations. The principal is also reassured that the surety will assume responsibility for timely payments. If the principal defaults on the performance, the Surety Insurance provider pays damages to the obligee.
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According to New India Assurance, for small businesses, surety bonds are a useful tool as collateral requirements of insurance companies are less than bank guarantees. Surety bonds can enable smaller infrastructure developers to compete with larger, more established players for bigger contracts.
“The authorities issuing the contracts, usually governments, are generally hesitant to deal with smaller contractors as they are apprehensive about timely delivery. When the contractors furnish a surety bond, the authorities will readily consider them as the bonds indemnify them to the extent of the bond issued in the event of non-performance,” the company said in a release.