Experts say regulatory changes, including changes to the Insolvency and Bankruptcy Act and standardization of bond language, will subsidize newly introduced products called surety bonds, which are underwritten by property and casualty insurance companies. Launched in 2022, the product will play a key role in supporting India’s infrastructure development and will significantly reduce dependence on bank guarantees for project financing. As a result, banks will be able to focus their lending on other productive sectors.
Bajaj Allianz General Insurance, which pioneered the product, said it has been able to add more than 50 beneficiaries who have started accepting surety bonds.
According to Bajaj Allianz General Insurance Chief Technology Officer TA Ramalingam, the possible changes in the legal framework are aimed at providing insurers with legal recourse on par with banks under the Insolvency and Bankruptcy Code (IBC). It is said to be extremely important.
He told PTI that this parity will provide a level playing field, promote fair competition and encourage growth in the surety bond market.
Government sources said the issue has been submitted to the relevant ministries and a draft amendment to the IBC could be submitted to Parliament in due course.
“The expectation that surety bonds should be cheaper than bank guarantees is unsustainable for insurers. Issues related to pricing, reinsurance options, and unclear coverage documentation further impede progress. India’s contract law and insolvency and insolvency laws do not allow this right,” said Sunil Kanoria, founder of Vara Technology. Resolving these challenges would give surety bonds the needed boost and help realize economic development and infrastructure expansion, he added. Mr. Ramalingam further added, “The surety bond market faces significant challenges due to regulatory disparities, data limitations, reinsurance constraints, and lack of standardization, but legislative changes, data transparency, and industry “Strategic efforts focused on collaboration and standardization are key to overcoming these challenges.” Obstacle. ”
By proactively addressing these challenges, the guaranteed bond market can realize its full potential, provide a strong alternative to traditional bank guarantees, and foster broader economic growth, he said. Ta.
To address these challenges and foster growth in the surety bond market, the Insurance Regulatory and Development Authority of India (Irdai) and the General Insurance Council recently established a task force comprising representatives from insurance companies and banks. .
The task force will focus on developing risk-sharing strategies, strengthening collaboration between banks and insurers, and fostering an environment suitable for growth in surety bond insurance.
A surety bond is a financial product in which an insurance company acts as a “guarantor” and financially guarantees that the policyholder will perform its obligations according to agreed terms.
A guarantee bond issued by a non-life insurance company is a three-party contract in which one party (guarantor) guarantees the performance or obligation of a second party (principal) to a third party (creditor). A guarantor is a company that financially guarantees a creditor (usually a government agency) that the principal (the business owner) will honor the debt.
