General insurance companies are seeking parity with banks and other lenders for them to be able to get into providing surety bonds for contractors bidding for large projects.
The Union Budget had said that bidders for government projects could supply surety bonds instead of bank guarantees, which are much more expensive thus improving the viability of their bid. While in practice both surety bonds and bank guarantees do the same job of compensating the issuer of the tender for non-fulfilment, the challenge for the insurer lies during the recovery.
“Given surety bonds is an entirely new line of business, insurance companies would need clarity on various aspects such as pricing, the recourse available against defaulting contractors, reinsurance options and global best practices,” said ICICI Lombard General Insurance MD & CEO Bhargav Dasgupta.
“As an industry, we would urge the regulatory bodies to facilitate changes to laws such as the Indian Contract Act and the IBC and bring surety bonds on par with bank guarantees regarding recourse available to issuers. This will help the industry approach surety solutions with much more confidence, but it will be even more a viable proposition for all stakeholders,” he added.
