IRDAI Surety Insurance Contracts Guidelines, 2022 - A Landmark Event
Vikash Khandelwal, CEO, Eqaro Guarantees opines on the issuance of the guidelines to regulate and develop Surety Insurance business that shall come into force with effect from 1st April, 2022. The issuance of final guidelines for surety insurance by the IRDA is a landmark event that will herald a new era in the underwriting of construction-related risks and provide much-needed relief to the infrastructure sector. The norms will help regulate/develop Surety as a business in India which otherwise is an accepted norm in the western countries. The final guidelines are on expected lines focusing on the overall risk management framework for the insurers. Allowing the surety insurers to work alongside the Banks and other financial institutions to share risk-related information & technical expertise will help foster a robust ecosystem and prevent contagion. However, it would have been ideal if the final norms had also provided for a specialist surety insurance company. There is also a 10% cap subject to a limit of Rs 500 crores on the quantum of surety business that an insurer can write. The guidelines are also silent on the right of recourse available to a surety insurance company in the event of a default by the contractor. These are critical and may impede the creation of surety-related expertise and capacities and eventually deter insurers from writing this class of business.
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