Tata AIG General Insurance has introduced surety insurance bonds to support the Indian government‘s infrastructure development initiatives.These bonds are designed to provide an alternative to traditional bank guarantees, helping contractors participate more effectively in the infrastructure sector. The government has allocated 3.3% of the GDP for the fiscal year 2024 for infrastructure, creating significant potential for insurance companies offering surety bonds.
The company said these bonds will enable contractors to unlock capital, enhance their bidding capacity, and overcome liquidity and capital constraints. “Tata AIG is committed to addressing the critical liquidity and capital challenges faced by contractors in the infrastructure sector.
We are confident that this product will not only facilitate smoother project execution, but we will also contribute in our own way to the infrastructure segment towards India’s goal of becoming a USD 5 trillion economy,” said Deepak Kumar, Sr EVP TATA AIG General Insurance.
Surety bonds offer coverage to project owners against losses resulting from contractor non-performance, non-fulfillment, or breach of contractual obligations. TATA AIG’s product suite includes various types of contract bonds such as bid bonds, performance bonds, advance payment bonds, and retention money bonds, all of which comply with IRDAI guidelines.
These bonds guarantee that the party (the principal) will fulfill their contractual obligations to another party (the obligee). If the principal fails, the surety company compensates the obligee for the losses.
During the presentation of the Union Budget 2022-23, Finance Minister Nirmala Sitharaman said that the use of surety bonds as a substitute for bank guarantees will be made acceptable in government procurement. However, insurers said that the market has not taken off in a big way because insurers are not granted the same rights as other financial creditors during a bankruptcy process.
