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Source: The post is based on the article “Surety Bond: NHAI Accepts First Insurance Surety Bond as Bid Security for NHAI TOT Bid for Monetization” published in “PIB” on 11th November 2023
Why in the News?
National Highways Authority of India(NHAI) has accepted Insurance Surety Bond for the monetization program of the upcoming bid of Toll Operate Transfer(TOT) bundle.
What is Surety Bond?
| Specification | Details |
| Definition | Surety Bonds are a type of insurance policy protecting parties involved in a transaction or contract from potential financial losses due to a breach of contract or other types of non-performance. |
| Parties Involved | 1)Principal: The party that purchases the bond and undertakes an obligation to perform an act as promised. 2)Surety: The insurance company or surety company that guarantees the obligation will be performed. If the principal fails to perform the act as promised, the surety is contractually liable for losses sustained. 3)Obligee: The party who requires, and often receives the benefit of the surety bond. For most surety bonds, the obligee is a local, state or federal government organization. |
| Benefits | 1)Will assist in developing an alternative to bank guarantees 2)Helps address the large liquidity and funding requirements of the infrastructure sector. |
| Issues | 1)Surety bonds as a new concept is risky and insurance companies in India are yet to achieve expertise in risk assessment in such business. 2)Surety Bonds need extensive reinsurance support and no primary insurers can issue any policy without proper reinsurance backup. |
UPSC Syllabus: Indian Economy
