Insurance Guarantees More Attractive In Romania

By | September 11, 2017

Insurance guarantees have emerged as an alternative to letters of guarantee issued by banks. There are two basically types of guarantee instruments that can be used in Romania:

1. Unconditionally guarantees (issued in the form of “bank guarantees letters” issued by banks)

2. Conditional guarantees (issued by insurance companies)

Financial problems, and particularly the lack of liquidity, arising from the financial crisis which affected Romania from 2008 until in the present, forced companies from Romania to switch to insurance guarantees offered by insurance companies to the detriment of banking products such as letters of guarantee. Thus, the government decision with nr. 834/2009 mention that the guarantees issued by insurers are expressly accepted forms of guarantee by public institutes to participate in awarding the public auctions. However, nearly four years after the implementation of the new legal provisions, warranty insurance market is underdeveloped in this area.

By providing guarantees, insurer undertakes to pay compensation if the beneficiary is insured and it shows faults that can not fulfill its obligations under the contract of work / service. Most contracting authorities require companies participating in the auction bank guarantees, although the guarantees issued by insurers are expressly incorporated into the category of eligible collaterals. Companies that participate in auctions organised in Romania must know that contracting authorities do not have the right to choose or to impose what kind of guarantee is needed.

The insurer covers risks arising from failure or improper performance of the contractual obligations assumed by the Insured under contract with the beneficiary.

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There are four types of collateral as it follows:

– Providing tender guarantee (Bid Bond). According to statistics in Romania, this type of insurance is the most used from the guarantee insurances. This is because this type of insurance is required in the vast majority of auctions organised for various types of projects.

– Performance guarantee insurance contract (PERFORMANCE BOND)

– Providing Guarantee for advance return (ADVANCE PAYMENT BOND)

– Provide warranty period maintenance / maintenance (MAINTENANCE BOND). Regarding the fact that in Romania the infrastructure is quite poorly developed and there are many building sites to improve it, more and more companies, especially construction companies realized lots of infrastructure projects. Many of those projects deteriorated in a short period of time after completion of works. Therefore it was decided that one of the main condition for receiving a construction work will be the presenting of a performance bond insurance.

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