Letter of guarantee is no longer the only option while providing collaterals for public biddings. Bond insurance will pass as a substitute for letters of guarantee issued by banks. This will make it much easier for companies that wish to use their credit limits elsewhere.
Using bond insurance, administrations are able to buy coverage against the risks they anticipate based on the bidding and contract, in other words, risks that are set forth in the letter of guarantee and tender/bidding specifications. In case the risks are realized, they can claim payment from their insurance company. Insurance companies have a right to conduct certain analysis and ask the policyholder to take necessary measures; or pay the compensation without waiting for a response from the policyholder. Maximum amount of the compensation to be paid by the insurance company is limited to the compensation amount that is committed in the insurance policy.

Nihat Kırmızı, CEO of Doğa Sigorta, stated that this new arrangement will reduce the credit burden on banks and a new growth area will be opened for the insurance market. Nihat Kırmızı added that letters of guarantee are mostly used by companies operating in manufacturing, construction, energy and service industries: “Bond insurance is used more frequently than letters of guarantee, especially in developed insurance markets such as USA and Europe. We need to expand its customer base in Turkey, and reduce the burden of real sector by increasing our production in this field.”