The Insurance Regulatory and Development Authority of India (IRDAI) published finalised guidelines on 3 January 2022, setting out for the first time, rules governing surety business in India. The new rules are intended to help develop the local surety market with the goal of supporting massive investment plans in the country.
The development of the rules came after the Indian government requested that the regulator examine how to introduce rules to facilitate the growth of surety business in India to support investment plans, including a reported USD 100bn boost to roads and other transport infrastructure in the next two to three years.
The new rules come into force on 1 April, 2022 and illustrate permitted features of surety contracts in India, as well as eligibility criteria and expectations for underwriting, governance and risk management for those carrying on surety in India. The rules cap the percentage of annual surety premium that an insurer can write at 10% of the total gross written premium of that year up to a max of INR 5bn. Other notable elements of the guidelines include, the requirement for a Board-approved underwriting philosophy for surety, necessary underwriting expertise and experience, and requirements for due diligence over principals.
The development of the surety market in India demonstrates the growing appetite for such forms of protection in fast-growing economies around the world, particularly as the global recovery from the pandemic spurs greater investment. These guidelines are an important steppingstone and will likely evolve over time to meet the needs of the Indian economy and foster the local surety market. ICISA contributed to the initial consultation held by IRDAI in late 2021 and will seek to engage with the authority to offer further information on international best practice and support the growth of the market in India as the guidelines come into force in April.
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