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IFFCO-Tokio enters surety bonds business to support infra projects
IFFCO-Tokio General Insurance on Tuesday said it has entered the surety bonds business to support the infrastructure sector in the country.
Currently, only a handful of insurers offer surety bonds, including New India Assurance, ICICI Lombard General Insurance, SBI General Insurance, HDFC ERGO General Insurance, Tata AIG General Insurance, and Universal Sompo General Insurance.
Surety bonds are legally enforceable tripartite contracts that provide a hedge against risks associated with infrastructure projects.
'Surety bonds provide solutions to many issues faced by the infrastructure sector. On one hand, they help widen the contractors' pool for government departments or PSUs/PSEs; on the other, they enlarge the project-taking capacity of infrastructure companies, especially small and medium-sized contractors. Besides financial benefits, they help build a bond of trust among all stakeholders,' said Subrata Mondal, managing director and chief executive officer of IFFCO-Tokio.
According to the insurer, the construction industry alone has already offered bank guarantees (BGs) worth Rs 1.70 trillion so far, with this figure projected to grow to Rs 3 trillion by 2030.
Surety bond insurance is a risk mitigation solution aimed at supporting India's infrastructure sector. The insurance regulator had permitted general insurers to issue surety insurance bonds in April 2022. Bajaj Allianz General Insurance was the first company to launch the product.
However, the issuance of surety bonds remains muted due to several challenges, including collaboration between banks and insurance companies, data sharing, regulatory parity, and the inability to strengthen the enforceability of agreements between insurers and bond beneficiaries.
The insurance regulator had also formed a task force comprising banks, insurers, and reinsurers to address these challenges and drive growth in the segment.
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