The IRDAI has formed a nine-member working group to study the legal framework and feasibility of the insurance sector offering offer surety bonds for road contracts.
Given the economic impact of the COVID-19 pandemic, the Ministry of Road Transport and Highways (MoRTH) had requested the IRDAI to examine the possible offering of surety bonds by general insurance companies, reported Press Trust of India.
Headed by Mr G Srinivasan, director of the National Insurance Academy, the working group comprises representatives of public and private insurance companies and IRDAI, the sectoral regulator says in a circular.
The surety bonds guarantee satisfactory completion of a project by a contractor and provide performance security to various government agencies.
The insurance legal / regulatory framework currently does not permit underwriting of bonds that guarantee performance and bid securities as they are deemed as financial instruments and not conventional insurance products.
At present, banks have been issuing bank guarantees to contractors for contract security and performance pledges, the IRDAI says.