IRDAI relaxes norms for surety bonds to expand market for such products

New Delhi: Regulator IRDAI on Tuesday said that it has relaxed norms for 'surety bonds', a type of insurance policy protecting parties involved in a transaction or contract from potential financial losses due to a breach of contract or other types of non-performance. The changes are aimed at expanding the surety insurance market by increasing the availability of such products.

The prevailing 30% exposure limit applicable on each contract underwritten by an insurer

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 percent exposure limit applicable on each contract underwritten by an insurer, has also been removed.

IRDAI (Surety Insurance Contracts) Guidelines

The regulator issued 'IRDAI (Surety Insurance Contracts) Guidelines' in January 2022. IRDAI said that the amendments have been made on the basis of the evaluation of various representations received. The amendments follow the earlier notification removing the cap on premiums that could be underwritten in a financial year by mono-line insurers transacting only surety insurance business.

Current revisions are aimed to expand the surety insurance market: IRDAI

IRDAI said that the current revisions are aimed to expand the surety insurance market by increasing the availability of such products and creating the opportunity for more insurers to service the increasing demand from various sectors of the economy. "Surety insurance will increase the liquidity of contractors and provide a strong boost, especially to the infrastructure sector," it said in a statement.

Surety bonds serve as a risk mitigation tool for maintaining integrity, quality, and adherence to contractual terms, ultimately contributing to the smooth functioning of projects especially in the infrastructure sector, and fostering a healthy business environment.

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