Written by León Lanis V., Paralegal
The last economic report of Chile’s Central Bank, the IPOM (i.e., Chile’s Monetary Policy Report), which summarises the outgoing year and projects the economic landscape for the incoming year, shows that there are many indicators of steadfast growth, especially in infrastructure, services, and supply industries. With economic recovery on the horizon, it is essential to stay ahead of emerging industry trends, particularly those which affect contractual certainty and risk allocation.
In this regard, Chile has undergone a quiet reshaping in this matter, shifting from bank-issued guarantees to insurance-issued performance guarantees (surety bonds). This new trend is reshaping not only the way we asses contract security but predominantly how risk, liquidity, and compliance is structured from a legal standpoint.
Paradigm shift: From bank guarantees to insurance policies
For decades, bank guarantees were the standard mechanism for securing contractual performance. This mechanism, although logical from a security point of view, has various financial and logistical drawbacks: funds were immobilised, credit lines were directly affected, there was high risk of financial exposure, etc.
However, over the past few years, there has been a steady shift in guarantee mechanisms toward insurance guarantees, which have emerged as a global trend to address these challenges by:
- Risk assessment by insurance companies, helping reduce exposure in the event of contractual breaches;
- Preserving contractors’ borrowing capacity, as insurance guarantees do not consume bank credit lines; and,
- Maintaining liquidity, enabling companies to manage multiple contracts and bids without compromising cash flow or future opportunities.
From a legal perspective, this shift places greater importance on precise contractual drafting, especially regarding trigger events, execution mechanisms, and the interaction between the underlying contract and the insurance policy itself.
Services and manufacturing: Ensuring continuity and compliance
Furthermore, in service agreements and manufacturing or supply contracts, the risk profile typically differs, requiring tailored security and risk allocation mechanisms. Breaches may arise gradually, especially through repeated delays, quality issues, or partial non-compliance, rather than from a single failure.
This is where insurance guarantees clearly outperform traditional bank guarantees in terms of flexibility and efficiency, as they:
- Secure ongoing or periodic obligations (without resorting to rigid and slow banking instruments and schedules);
- Are very fluid and can evolve throughout time, because they allow for adjustments and renewals, and predominantly; and,
- Reduce financial friction in long-term contracts by easing cash-flow management.
In addition to the reasons driving their growing adoption, insurance guarantees offer a clear operational advantage over traditional bank guarantees, particularly in the context of public tenders. They reduce financial impact, provide a more flexible and robust security structure, and allow for faster and more efficient issuance. This speed and operational efficiency have become decisive factors in tender processes, enabling companies to lower administrative costs and respond effectively to increasingly compressed bidding timelines.
The importance of expert guarantee management
Despite the above, obtaining, and structuring insurance guarantees is neither automatic nor simple. Having expert support to review, structure, manage, and obtain these guarantees is critical to ensuring the insurance accurately reflects the risks of the contract and the business. Proper guidance helps avoid delays, streamline documentation, and ensure that the guarantee aligns with both contractual requirements and the underlying risk profile.
This isn’t important only from a financial and operational standpoint, but also essential compliance-wise. Clear identification and effective mitigation of compliance risks embedded in insurance policies are critical to preserving deal value and execution certainty. When these risks are properly managed, investors reduce the likelihood of unenforceable protections, regulatory exposure, and post-closing disputes, ultimately increasing the probability of a transaction delivering its expected commercial and financial outcomes.
Conclusion
In conclusion, Chile’s guarantee landscape and framework has entered a new phase. The transition to surety bonds reflects a broader evolution in how contractual risk, liquidity, and performance is managed.
For parties involved in infrastructure, services and manufacturing contracts, and for their legal advisers, when properly navigated, this evolving landscape has the potential to transform how risk is managed—delivering greater efficiency, lower costs, and faster outcomes. Insurance guarantees are no longer a formality, but rather a strategic component of contract structuring, risk allocation, and long-term project viability.
Harris Gomez Group METS Lawyers ® opened its doors in 1997 as an Australian legal and commercial firm. In 2001, we expanded our practice to the international market with the establishment of our office in Santiago, Chile. This international expansion meant that as an English speaking law firm we could provide an essential bridge for Australian companies with interests and activities in Latin America, and to provide legal advice in Chile, Peru and the rest of Latin America. In opening this office, HGG became the first Australian law firm with an office in Latin America.
As Legal and Commercial Advisors, we partner with innovative businesses in resources, technology and sustainability by providing strategy, legal and corporate services. Our goal is to see innovative businesses establish and thrive in Latin America and Australia. We are proud members of Austmine and the Australia Latin American Business Council.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice. It does not create a solicitor-client relationship, and readers should seek independent legal advice for their specific circumstances. Harris Gomez Group accepts no liability for reliance on this content.