Irdai forms task force to tackle challenges, boost growth of surety bonds
Mumbai, Aug 23, 2024
A surety bond is a risk transfer mechanism whereby an insurance company provides a guarantee to the beneficiary that the principal or contractor will meet their contractual obligations
The Insurance Regulatory and Development Authority of India (Irdai) has formed a task force to address challenges and drive the growth of surety bond insurance. The task force comprises representatives from insurance companies, banks, and reinsurers.
The insurance regulator and the General Insurance Council brought key stakeholders of the surety bond market together at a Surety Conclave in Mumbai to discuss key aspects including collaboration between banks and insurers, data sharing, and expanding the scope of surety bonds.
Speaking at the conclave, Debasish Panda, chairman of Irdai, said: "Surety bonds play a crucial role in supporting India's infrastructure development. By addressing the challenges and fostering collaboration, we can unlock the full potential of this valuable financial instrument. Today’s discussions have paved the way for meaningful collaboration among stakeholders, which will be instrumental in overcoming these hurdles."
A surety bond is a risk transfer mechanism whereby an insurance company provides a guarantee to the beneficiary that the principal or contractor will meet their contractual obligations.
The discussions at the meeting highlighted the need for regulatory support and industry-wide cooperation to address issues such as the right of recovery by the Ministry of Corporate Affairs, the status of secured creditors, and the need for faster court settlements.
During the conclave, the industry also discussed various challenges, including regulatory parity, enforceability of surety indemnity agreements, and data access and data-sharing agreements.
In terms of regulatory parity, industry participants are advocating for equal legal recourse for insurers under the Insolvency and Bankruptcy Code (IBC), as enjoyed by banks. They are also seeking to strengthen the enforceability of agreements between insurers and bond beneficiaries. Efficient data sharing between institutions is also considered a key concern.
Tapan Singhel, chairman of the General Insurance Council (GIC) and managing director and chief executive officer of Bajaj Allianz General Insurance, echoed these sentiments: "The collaboration between bankers and insurers, coupled with seamless data sharing, will be key to taking surety bonds to the next level. The formation of a task force is a critical step forward in ensuring that surety bonds become a cornerstone of India’s infrastructure growth story."
Other attendees included Dinesh Khara, chairman of the State Bank of India, Sunil Mehta, chief executive officer of the Indian Banks' Association (IBA), and T K Manoj Kumar, chairman of the Warehousing Development and Regulatory Authority (WDRA).
[The Business Standard]
