Surety bonds have been gaining traction in India since the Ministry of Finance issued a circular on 2nd Feb 2022. The circular (attached below) mentions that performance guarantees can be submitted in the form of insurance surety bonds. This move by the government has opened up a new avenue for insurers. This has caused a ripple effect in the market.
INSURANCE SURETY BONDS: THE IMPACT ON THE INSURANCE MARKET
The circular has mandated that all tenders by Public Sector Undertakings (PSUs) mention the acceptance of surety bonds. This has created an opportunity for insurance companies to offer surety bonds as a form of performance guarantee, which has traditionally been provided by banks. With the acceptance of surety bonds, insurers can now tap into a vast market of PSUs. This service of Surety Bonds acts as an alternative to bank guarantee by banks.
THE GROWTH POTENTIAL OF SURETY BONDS IN INDIA
Since the launch of surety bonds in India in February 2022, the market has been quick to catch on. Insurers have been actively promoting their surety bond offerings, and the response from the market has been positive. The exponential growth prediction for surety bonds in India is based on the fact that they are a more cost-effective and convenient option for performance guarantees. Additionally, they provide a source of diversification for insurance companies.
The Example of Brazil: Insurance Surety Bonds
In developing countries like Brazil, surety bonds have already seen exponential growth since their launch. The Brazilian market is an example of how surety bonds can create a significant impact. In Brazil, surety bonds are mandatory for most government contracts, which has created a vast market for surety bond providers. The market for surety bonds in Brazil has grown from $4.8 billion in 2010 to $26.7 billion in 2019. This represents a compound annual growth rate of 19.5%.
The Response from the Indian Market
Surety Bonds Insurance market in India is set to experience a growth similar to that of Brazil. The potential for growth is significant, with a vast market of PSUs and government contracts available. Additionally, the cost-effectiveness and convenience of surety bonds make them an attractive option for companies looking for performance guarantees.
The push from the Ministry of Finance has already caused a stir in the market. The acceptance of surety bonds as a form of performance guarantee is a game-changer. Players like Surety 007 are aggressively promoting their technology for Surety Bonds. The market for surety bonds in India is expected to grow exponentially in the coming years. Insurers will look to position themselves to capture a significant share of the market.
PSUs are mentioning Surety Bonds acceptance as Payment Instruments in their tenders released on eprocure website. This is creating an all round inclusive environment which is sure to propel the growth of Surety Bonds for the right player like Surety 007
Surety 007 leading the way for insurance surety bonds
Surety 007 stands firmly in the front seat to build on this situation of wider acceptance of Surety Bonds through its technology. We are currently one of the few, if not the only company, that is enabling Surety Bonds issuance in India through its technology. Our offerings have helped our clients see a sudden growth in their working capital. One of our clients has remarked that “Surety Bonds by Surety Seven have given my business a new lease of life. For B2G businesses Surety Bonds from Surety Seven are nothing short of a blessing.”
In conclusion, the push from the Ministry of Finance for the acceptance of surety bonds in tenders by Public Sector Undertakings is a significant development in the Indian insurance market. Surety bonds provide an attractive alternative to banks for performance guarantees, and insurers are actively promoting their offerings. The exponential growth prediction for surety bonds in India is based on their cost-effectiveness, convenience, and the vast market of PSUs and government contracts available. Brazil is an excellent example of how surety bonds can create a significant impact.