Financial guarantee insurance (bonds)
A request placed on suppliers to conclude a contractual warranty insurance policy has become a generally used to get protection against suppliers' failure to meet their obligations following from contracts for work, or tender documentation for a selection procedure.
By arranging a warranty insurance policy and issuing a guarantee for the consumer/client, the insurer assures that should the insured supplier fail to meet its obligations following from contracts for work, or should it fail to conclude a contract for work based upon a tender it has won, the insurer shall indemnify the consumer/client under the conditions agreed in the insurance policy (scope and amount of indemnification).
This is an alternative to a bank guarantee or depositing cash funds to an agreed bank account for a period of up to several years, and thus impacts positively company portfolio concentration and the company's cash flow.
Prior to concluding a warranty insurance policy, a detailed analysis of the financial situation of the entity interested in coverage must be prepared by the insurer, to verify the entity is able to meet its obligations following from a contractual relationship.
Among the most common warranty types are:
- Advanced payment bond
- Bid bond
- Performance bond
- Retention bond
- Maintenance bond
Customs debt and excise tax warranty insurance
This is a warranty specific for international commercial exchange between EU Member States and third countries which is subject to customs duties and indirect tax (customs debt warranty); and for the manufacture, storage, transport, and shipping of products subject to excise duty, such as alcohol, cigarettes and tobacco products, mineral oils, beer and wine (excise duty warranty).
In a number of cases, the government (Customs Administration) must be provided a guarantee for customs duties and taxes so that the goods in question may be handled. This is frequently done using special customs and tax modes governed by the law of the CR and EU.
Among those most frequently interested in this type of insurance policy are international carriers and shipping agents, operators of customs and tax warehouses, companies focused on inward-processing, manufacturers, etc.
This insurance policy is suitable for future owners of property and for institutions providing loans for such purchases in a situation in which—given the investment amount and/or specific characteristic of the investment target country—wish to have insurance against potential financial losses following from a challenge to their ownership rights to the property or limitation thereof. In this respect, restitutions or privatisation of state-owned assets, as well as functioning of authorities represents a significant risk factor.
The product is specific in that it is necessary to provide the insurer with extensive background materials related to the real estate property and demanding legal due diligence procedure, before the insurance policy conditions are presented. In addition, it is necessary to customize the product, and the terms and conditions to every entity interested in coverage (investor, lending institution, insurance against one selected risk), and the circumstances of each individual business case.
Employment agency bankruptcy insurance
Act No. 435/2004 Coll., on Employment, imposes upon employment agencies that mediate employment by temporarily allocating their own employees, to conclude an insurance policy protecting against their bankruptcy, and the consequential failure to pay wages to the temporarily assigned employees who have concluded employment contracts or agreements on work with the agency.
The law also designates the limit of insurance coverage, whose minimal amount equals to three times the average net monthly earnings of all temporarily allocated employees.
Travel agent bankruptcy insurance
Act No. 159/1999 Coll., imposes an obligation on travel agencies to conclude an insurance policy which will indemnify the travel agent clients in the event of the travel agent's bankruptcy, and failure to fulfil the conditions of the travel contracts concluded. Most frequently, indemnification is provided if—as a result of the agent’s bankruptcy—holidays did not take place in their entirety and clients thus lost amounts equal to the price of their trip or the paid deposit. Or, owing to the fact the agent did not pay for the services ordered, the holiday trips must be cut short and clients return back to their homes.
The amount of client indemnification is limited by the insurance coverage negotiated under the insurance policy.