Insurance Regulatory and Development Authority of India (IRDAI) has decided to set up two hubs, one on motor insurance at ‘Institute of Insurance and Risk Management (IIRM), the other on property insurance at ‘National Insurance Academy (NIA)’ to promote loss prevention measures in the general insurance industry.
- IRDAI also decided to form an advisory committee under the chairmanship of the NIA director to create a repository of past risk inspection reports and develop standard survey/inspection report formats.
- IRDAI has made the decision to form two hubs and also the advisory committee based on the recommendations of a working group on loss prevention and minimisation in the general insurance industry.
About the Advisory Committee:
i.The advisory committee which has a term of 2 years will have two sub-committees within it such as sub-committee on motor insurance and property insurance.
ii.The sub-committee on motor insurance:
- It will develop guidelines on inspection of vehicles and standard operating processes to be followed by vehicle owners in the event of a loss.
- It will also map high exposure accident spots across the country, and develop a standard matrix (score) to incorporate safety features for each make and model of vehicle.
iii.The sub-committee on property insurance: It will create a repository of past risk inspection reports and develop standard survey/inspection report formats.
Note – The advisory committee was directed to submit the work progress report to the IRDAI on monthly basis.
-IRDAI sets norms for surety cover
In exercise of the powers conferred under section 14 (2) (i) of IRDA Act, 1999, IRDAI has issued the following guidelines to regulate and develop Surety Insurance business named ‘IRDAI (Surety Insurance Contracts) Guidelines, 2022’.
- The guidelines will come into force with effect from 1st April 2022.
What is a surety bond?
i.A surety bond is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).
ii.The surety is provided by an insurance company on behalf of a principal or contractor to the obligee or government entity awarding the project.
iii.Surety guarantee should be a contract of guarantee under Section 126 of the Indian Contract Act, 1872. The contract will perform the promise or discharge the liability of a third person in case of his default.
iv.The surety contracts will include advance payment bonds, bid bonds, contract bonds, customs and court bonds, performance bonds and retention money.
Requirements of Underwriting of Surety Insurance Business:
The insurers were required to have a board-approved underwriting philosophy for the surety insurance business.
a.General Provisions:
i.A general insurer can commence a surety insurance business if it has 1.25 times the solvency margin that it is required to keep.
- If at any point in time the solvency of the insurer goes below the required level, the insurer has to stop underwriting the new surety insurance business until its solvency margin is restored.
ii.The underwritten premium in a financial year for any general insurers from the surety insurance business should not exceed 10 percent of the total gross written premium subject to a maximum of Rs 500 crore.
b.Underwriting Guidelines:
i.The limit of guarantee shall not exceed 30 percent of the contract value.
ii.Surety Insurance contracts should be issued only to specific projects and not clubbed for multiple projects.
iii.The insurer should not issue any Surety Insurance contracts on behalf of its promoters/their subsidiaries, groups, associates and related parties.
iv.Surety Insurance contracts should not be issued where the underlying assets/commitment are/is outside India. Click here to know more about the guidelines
Applicability:
i.The norms will be applicable to all Insurers registered under the Insurance Act, 1938, to transact the business of general insurance and Surety Insurance.
ii.After the inception of the guidelines, the transaction of the business of Surety Insurance in India will be allowed only for the Indian Insurance Company as defined in Section 2 (7A) of the Insurance Act, 1938.
Recent Related News:
A Composite Broking Licence from the Insurance Regulatory and Development Authority of India (IRDAI) is being provided to Hero Insurance Broking India Pvt. Ltd. (HIBIPL). It will allow the firm to offer reinsurance broking and risk management consultancy services to corporate clients.
About Insurance Regulatory and Development Authority of India (IRDAI)
Establishment – 2000 (following the recommendations of the Malhotra Committee report)
Headquarters – Hyderabad, Telangana
