Insurance of Guarantees (Sureties)

Building warranty insurance protects the insured against material losses in the event that the policyholder fails to meet its contractual obligations, for example because of its own insolvency. For this reason, such guarantees are compulsory for contractors carrying out construction work. For major construction works involving several subcontractors, guarantee policies are also issued for the performance of obligations towards the main contractor. Thus, the insured may be both the client and the general contractor.

There are several types of building warranties, which are applicable according to the specific stage of the building process.

Tender guarantee insurance

This type of insurance will cover the costs of re-tendering the building if the policyholder withdraws or modifies its tender after winning the tender, fails to provide the required performance guarantee specified in the tender conditions or fails to conclude a contract with the contracting authority within the time specified in the tender conditions.

Pre-payment guarantee insurance

The risk of a prepayment guarantee arises when the policyholder fails to use the prepayment (advance payment) received from the insured in accordance with the terms of the contract, e.g. by failing to carry out certain works, deliver materials, etc.

Construction performance bond insurance

Construction performance bond insurance covers the insured against loss for non-performance of works if the policyholder has breached the terms of the construction contract or has failed to perform the construction work under the contract in time.

Warranty period guarantee insurance

Warranty period insurance will cover the costs of remedying defects within the warranty period stipulated in the building contract. For example, if the policyholder fails to comply with the contractual obligation to remedy defects in the works within the guarantee period.

The sum and term of insurance shall be determined by mutual agreement between the insured and the policyholder and the sum shall be specified in the insurance policy.

Before issuing guarantee insurance, insurance companies assess their potential clients according to a number of criteria, the most important of which are:

• the financial situation and balance sheet characteristics of the company;
• the age and experience of the company;
• the existence of tax and other debts;
• the amount of insurance required;
• the policy term;
• details of guarantee insurance policies previously issued;
• the reputation of the policyholder as well as that of the purchaser or the general contractor.

A separate and important criterion for the issue of guarantee insurance and its successful future development is the cooperation of the company requesting guarantee insurance with the insurance company in other forms of insurance.