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The Insurance Regulatory and Development Authority of India (IRDAI) while exercising the powers instituted in it under section 14(2)(i) of IRDA Act, 1999 has come out with guidelines IRDAI (Surety Insurance Contracts) Guidelines, 2022 on 3rd Jan 2022 which are supposed to come into force from 1st April, 2022. The purpose of introducing these guidelines is to regulate the insurance surety business while dealing with the unique risks and features of surety insurance.
A Surety Insurance Contract is essentially a contract of Guarantee under section 126 of the Indian Contract Act, 1872[1]. It is nothing but a contract where the surety promises to perform or discharge the liabilities of a third party in case of that third party defaults in fulfilling his obligations.
A contract of surety is deemed to be a contract of insurance only if it has been executed by a surety who has been registered as an insurer under the provisions of Insurance Act, 1938 with a view to transact the business of general insurance.
As per the guidelines issued, Surety Insurance Contracts can be in the form of Contract Bond, Bid Bond, Retention money, Advance Payments Bond, Performance Bond.
These guidelines shall be applicable to all the Insurers who are registered under the Insurance Act, 1938 who are engaged in the business of General Insurance and Surety Insurance. However, these insurers are subjected to the eligibility criteria set out in the guidelines.
Given the unique type of risks involved and peculiar nature of the surety insurance business and the specific features of the insurance products, the above mentioned guidelines have been brought to regulate and develop the business of Surety Insurance. The given guidelines will ensure that an orderly development of the surety insurance business and surety bond market. The guidelines follow the recommendations of the working group set up by the regulator to promote orderly development of the surety insurance business in India.
Read our Article:Cyber Liability Insurance: IRDAI New Reform
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