The surety insurance market is skewed towards lower quantum bid bonds

24 Jul 2024 CW Team

To provide an alternative to traditional bank guarantees and help contractors participate more effectively in infrastructure, Tata AIG General Insurance introduced surety insurance bonds to support the Government's infrastructure development initiatives. The Government has allocated 3.3 per cent of the GDP for FY2024 for infrastructure, creating significant potential for insurance companies offering surety bonds, which will enable contractors to unlock capital, enhance their bidding capacity and overcome liquidity and capital constraints. Deepak Kumar, Senior Executive Vice President and Head, Reinsurance, Credit and Aviation Insurance, TATA AIG General Insurance, in an email interaction informs R SRINIVASAN about what makes security bonds more ideal compared to traditional bank guarantees and shares his views of the bond market in 2024 and going ahead. Excerpts:

Security bonds are designed to provide an alternative to traditional bank guarantees, helping contractors participate more effectively in the infrastructure sector. What makes them preferable?
The fact that surety bonds will be offered without the requirement of a collateral or margin money makes them an economical option for contractors vis-à-vis bank guarantees. Although bank guarantees look cheap to the naked eye, there is a hidden cost that comes with the requirement of collateral or margin money.

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