NHAI Accepts First Insurance Surety Bond

• 13 Nov 2023

Recently, State-owned National Highways Authority of India (NHAI) accepted first insurance surety bond for the monetization program of the upcoming bid of Toll Operate Transfer (TOT) Bundle 14 to boost liquidity and capacity of bidders.

• It is the first time this innovative instrument (Insurance Surety Bond) is being utilized as a Bank Guarantee (BG) in the road infrastructure sector for monetization of bids.
• NHAI has been working closely with Highway Operators Association of India (HOAI), SBI General Insurance and AON India Insurance to implement this initiative.

Key Points

• These bonds can be defined in their simplest form as a written agreement to guarantee compliance, payment, or performance of an act.
• These are instruments where insurance companies act as ‘Surety’and provide the financial guarantee that the contractor will fulfil its obligation as per the agreed terms.
• Surety is a unique type of insurance because it involves a three-party agreement.
• The three parties in a surety agreement are:
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 For most surety bonds, the obligee is a local, state or federal government organisation.