As India’s economic vision gains momentum, surety bond market is expected to reach $3 bn by 2030

The market outlook for surety bonds market in the country is extremely positive. India’s aspiration of becoming a $5 trillion-plus economy by 2030 is anchored on massive infrastructure spending. The government has indicated infra investment will stay around 3.4% of GDP, supplemented by defence and other sectors.

This infrastructure pipeline will translate into demand for surety bonds across roads, ports, defence, and urban infrastructure. Our estimates suggest the market could generate $3 billion of premium/commission opportunities by 2030 for insurers and banks, says of Deepak Kumar, Senior Executive Vice President & Head, Reinsurance, Credit & Aviation Insurance, Tata AIG General Insurance, in an interview with Bizz Buzz

It has been three years since IRDAI first introduced guidelines for surety insurance. How would you describe the market’s journey so far?

When the Insurance Regulatory and Development Authority of India (IRDAI) issued guidelines for surety bonds in April 2022, there was excitement, but the product took some time to gain momentum. The industry needed to build awareness, clarify guidelines, and establish comfort with reinsurers and beneficiaries.

Over the last 18 months, however, traction has improved significantly. IRDAI has supported insurers through periodic relaxation of guidelines, making the product easier to launch and distribute. Today, many government departments and agencies are incorporating surety bonds into their tenders. We see this as an inflection point where surety insurance is moving from a niche product to a mainstream risk solution.

What kind of measures has IRDAI taken to accelerate this momentum?

IRDAI has been pragmatic. Initially, the regulations were conservative, with higher solvency requirements and limitations on exposure. Over time, the regulator has fine-tuned these, allowing insurers more flexibility in issuing surety bonds.

Equally important is the regulator’s role in building confidence among stakeholders. Through discussions with insurers, reinsurers, and government beneficiaries, IRDAI has helped highlight the value of surety insurance. This has created a more enabling ecosystem where both insurers and contractors feel confident using the product.

Where do you see demand for surety bonds coming from?

The bulk of the demand is from contract bonds, particularly bid bonds and performance bonds. These are integral to infrastructure and construction projects. Increasingly, we are also seeing demand for advance payment bonds and retention bonds, which help contractors free up working capital.

The real beneficiaries are mid-sized contractors. Banks often require heavy collateral for issuing bank guarantees. Surety bonds, on the other hand, only involve paying a premium. This model is far more accessible for mid-tier firms that have strong project expertise but limited collateral.

What is the current size of the surety insurance market in India?

In terms of gross premium written (GPW), the market today is valued at approximately Rs 800 crore. A handful of insurers are leading this space—New India Assurance, Bajaj Allianz, and Tata AIG account for a large share. At the same time, other insurers such as ICICI Lombard, Zuno, Go Digit, and HDFC Ergo are active participants.

Looking ahead, more players like Liberty General, Cholamandalam MS, and Reliance General are preparing to enter the segment. With more entrants, we expect competition to intensify, but equally, awareness and adoption will grow.

How is the market likely to grow in the near term?

We expect FY26 to close with a market size of around Rs1,200 crore. Demand is rising, enquiries from contractors are strong, and government beneficiaries are increasingly open to accepting surety. Over time, reinsurers are also providing larger capacity support, with bond ticket sizes going up.

If the government amends insolvency law to classify insurers as financial creditors (at par with banks), this will further unlock capacity. Many global reinsurers are waiting for this legal clarity before committing large lines, and that change could accelerate growth dramatically.

What trends have you observed in the past year in terms of adoption?

Several encouraging trends stand out:

• Demand and enquiries for surety bonds are rising steadily.

• Intermediaries are proactively promoting the product, with frequent product-specific training sessions.

• More beneficiaries—beyond early adopters like NHAI—are now open to accepting surety bonds.

• Higher-rated corporates, not just mid-tier contractors, are exploring surety bonds as an alternative to bank guarantees.

• Contractors appreciate the no-collateral structure of surety bonds, which helps them unlock capacity and participate in more tenders.

• In the long run, we expect banks to rationalise their exposure to bank guarantees, which will further strengthen the case for surety bonds.

Could you share some milestones your company has achieved in this journey?

We are proud of several firsts and milestones:

• We are close to issuing 1,000 bonds since April 2024, which shows strong acceptance in a relatively short period.

• We became the first insurer to issue all four categories of contract bonds—bid, performance, advance, and retention.

• We have issued bonds for government and state entities, local municipalities, and private beneficiaries.

• In June 2024, we issued the first-ever performance bond of over Rs100 crore for an A+ rated contractor.

• In May 2025, we issued the largest performance bond in the industry worth Rs322 crore.

• We now have 125+ clients onboarded, and continue to engage actively with beneficiaries through workshops and dialogues.

Reinsurers play a critical role in surety. How is their participation evolving?

Reinsurance support is strengthening. Earlier, capacity was limited, and ticket sizes were smaller. But now, with successful issuance history and low claim incidence so far, reinsurers are offering larger limits.

That said, many large global reinsurers remain cautious until the insolvency law is amended. Once insurers are classified as financial creditors, reinsurers will have more comfort in recoverability, which will further boost participation.

What about the claims experience so far?

A. It is still very early. Surety bonds, especially performance and retention bonds, are long-tail products with tenors ranging from one to seven years. As of now, claims have been very low and negligible in volume. Over time, as projects reach maturity, we will see claims emerge.

This limited claims experience is one reason reinsurers are cautious, as they prefer more local data to refine pricing. But so far, the performance has been stable and encouraging.

From a pricing perspective, how are surety bonds structured?

A. Premiums are typically charged as a percentage of the bond value per annum. Rates depend on several factors:

• The contractor’s credit profile

• The type of bond (bid, performance, advance, retention)

• The tenor (short vs long tail)

• The beneficiary’s requirements

Broadly, pricing ranges from 0.5% to 1% per annum for well-rated contractors, and can go up to 1.5–2% for lower-rated contractors or longer-tenor bonds. The value proposition is clear: contractors pay a small premium, often without pledging collateral, compared to tying up large sums with bank guarantees.

What is the forward-looking outlook for the surety bond market in India?

The outlook is extremely positive. India’s aspiration of becoming a $5 trillion-plus economy by 2030 is anchored on massive infrastructure spending. The government has indicated infra investment will stay around 3.4% of GDP, supplemented by defence and other sectors.

This infrastructure pipeline will translate into demand for surety bonds across roads, ports, defence, and urban infrastructure. Our estimates suggest the market could generate $3 billion of premium/commission opportunities by 2030 for insurers and banks.

By then, insurers could capture up to 25% of the market share. Surety insurance will no longer be a niche—it will be an integral part of India’s infrastructure financing ecosystem.

What role will your company play in shaping this market?

We see ourselves as pioneers and thought leaders. By being the first to issue all four types of bonds, by educating beneficiaries, and by executing milestone deals, we have shown leadership.

Our commitment is twofold:

1. Product Innovation – tailoring surety solutions that meet diverse project needs.

2. Ecosystem Development – engaging with government beneficiaries, contractors, intermediaries, and reinsurers to build confidence.

As the market scales, we will continue to play a central role in expanding access, deepening adoption, and building trust in surety insurance.