Surety Bonds are an essential component of the insurance industry that ensures the performance of a contract. In India, the insurance market has been facing challenges in securing treaties for Surety Bonds from Reinsurance companies. This has resulted in limited access to Surety Bonds, leaving a significant portion of the market underserved. In this blog, we will delve into the problems surrounding Surety Bonds in India and the potential solutions to improve their accessibility.
Insurance Companies’ Struggle with Surety Bonds
Bajaj Allianz and The New India Assurance, two of the major insurance companies in India, have launched Surety Bonds but are laden with many problems. However, they have faced difficulties in issuing a significant number of these bonds. Bajaj Allianz is working only with a single reinsurance player, while New India has support only from GIC Re. As a result, they are unable to cater to the high demand for Surety Bonds.
The New India Assurance launched a subpar product for Surety Bonds that still requires collateral. Moreover, the company has failed to propagate information on the product to its offices and staff, leading to low adoption rates. On the other hand, Bajaj Allianz has limited its sale of Surety Bonds to select companies, and only for NHAI as the Obligee, leaving many businesses without access to Surety Bonds.
Surety Seven: A Solution to the Problem
Surety Seven, a new player in the Indian insurance market, has taken the market by storm. The company is currently dealing with multiple Reinsurance companies and has collected significant data in collaboration with partners. Additionally, they have developed technology that has made the documentation for Surety Bonds quick and easy. While traditional players require 10 or more days to collect and analyze the data for Surety Bonds, Surety Seven can analyze the data in a matter of minutes. They have also incorporated Chat GPT APIs for Underwriting of Surety Bonds, which is a significant achievement.
The Role of Banks in Improving Access to Surety Bonds
The adoption of Surety Bonds in India can be improved by involving banks as partners. Banks already sell Bank Guarantees and can sell Surety Bonds up to a contract value of Rs.5 crores through the Bancassurance channel, which enables them to sell Insurance products. This would make it easier for businesses to access Surety Bonds, thereby increasing their adoption rates.
The Importance of Technology for Surety Bonds Accessibility
Technology is the way forward to enable Surety Bond availability for the mass market in India. Surety Seven has shown that incorporating technology can significantly reduce the time and effort required to issue Surety Bonds. By partnering with Surety Seven, traditional players can improve their efficiency and provide greater access to Surety Bonds.
G20 Support for Surety Bonds
Multiple G20 countries have decades of experience issuing Surety Bonds. In contrast, India has only allowed them in the year 2022. The G20 summit in India is an opportunity for the country to seek support from Reinsurance companies in the G20 for Surety Bonds. In turn, India can allow access to a multi-billion-dollar growing Surety Bond market to the Reinsurance companies in G20 countries.
Surety Bonds have immense potential to improve the performance of contracts in the Indian market. However, the current challenges faced by traditional players have limited their accessibility. Surety Seven has shown that technology can significantly improve the efficiency of issuing Surety Bonds. Additionally, involving banks as partners can also improve access to Surety Bonds. With the support of the G20 countries, India can take significant steps towards providing greater access to Surety Bonds in the Indian market.