Facts for Prelims (FFP)
Context: The Insurance Regulatory and Development Authority of India (Irdai) has relaxed norms for ‘surety bonds’.
The changes introduced:
The solvency requirement for surety bonds has been reduced to 1.5 times from the previous 1.875 times, and the exposure limit of 30% applicable to each contract underwritten by an insurer has been removed.
Aim of the changes: The changes are aimed at expanding the surety insurance market and increasing the availability of such products.
What is Surety Bond?
A surety bond is a type of insurance policy that ensures parties involved in a contract are protected from financial losses if one party fails to fulfil its obligations.
If a construction company fails to complete a project as agreed, the surety bond compensates the client for the losses. It ensures financial protection and guarantees that the contract will be fulfilled.
The Insurance Regulatory and Development Authority of India (est. 1999; HQ: Hyderabad) is a statutory body under the jurisdiction of the Ministry of Finance. It is tasked with regulating and licensing the insurance and re-insurance industries in India.