Bonds which may be required in almost every sphere of inter-personal and inter-corporation transactions are very wide in scope. Generally speaking, it is not a form of insurance business but because of the fact that insurance companies are financial institutions, their bonds are acceptable hence the involvement of insurance companies in bonding business, particularly those bonds which can generate other classes of insurance business for example bonds business which are secured together with other project insurance like the contractors’ Erection All Risk, Public Liability and Workmen’s Compensation insurance.

Under the PIAM’s bond underwriting guideline , the total bond business which an insurer can underwrite is limited to 5% of the total gross premium of the company based on the previous financial year ( not restricted to new business only but can include extension of existing contracts ie on total )

There are certain peculiar features in bond :-

  • A bond once given, cannot be cancelled before its expiry date
  • All bond issued to contractors for government projects are demand bonds and we worded in such a way that they can be invoked by holder of the bond without any reason and explanation. Insurer is obliged to pay upon demand notwithstanding any dispute or protest by the contractor or insurer or any third party.

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Note: All the above stated are subject to insurance company acceptance and approval only.

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