JW Surety Bonds

Just Get A Bond

A good portion of a bond producers day is spent educating clients. The average person does not know what a surety bond is. Too often, people think that a bond can guarantee risk problems that it can not. Usually, this is from a misinformed government official, a lawyer that isn’t worth their student loans, or a “clever problem solver” that thinks of unviable solutions. In other words, you can not obtain a surety bond to guarantee all risk types. Next time someone tell you to “Just Get A Bond”, tell them to read this article and to “Just Do Some Research”.

The government will often require a bond of someone, which either can not be obtained or the government simply fails to set up the requirements properly. Bonds that can not be obtained are typically required by a local government. We received a call earlier this year for a woman that needed a bond for her dog that bit a child. I found this odd, as usually bonds are requested for more traditional guarantees. I figured it was simply a local judge that knew nothing about the surety industry requiring it of her. A couple of weeks ago I stumbled upon an article about viscous dogs required to obtain bonding. This is a classic example of a local government requiring a bond that no one in their right mind will write, as well as setting up the requirements incorrectly. If you were the president of a surety, do you think it would be a good idea to guarantee an animal? An animal that has already bit a child? The government also set up the requirements incorrectly, as they did not create a template bond form to describe the nature of the guarantee. Sometimes a local government says, just get a $X bond. However, if you do not have language stating what the bond is guaranteeing then it will be very difficult for a claim to be triggered, making the bond useless.

We also get calls from people who were told to “Just Get A Bond” from their lawyer or the company problem solver. Often, the caller requests a bond to guarantee payment of a loan or to guarantee the purchase of something. As far as I know, these financial guarantee type bonds have pretty much gone the way of the Dodo. There is simply too much risk involved and too much underwriting to be done since each of these guarantees are specific in nature. We are in a convservative bond market, almost a complete opposite of just a few years back. Traditional underwriting practices will not allow for such risks to be written.

The next time someone tells you to “Just Get A Bond” to guarantee a risk, be sure to visit our forums and ask an agent if it is a viable solution to your problems or not. Who knows, maybe you can even request your attorney to refund you for the phone call to give you poor advice that was not properly researched.

Funny, another attorney just called while I was writing my last paragraph. However, he could not tell us exactly what he was looking the bond to guarantee, he just had a client that “need to be bonded”.

Surety Bond Industry Normalizing

The surety bond industry has gone through some major changes in the past couple years. Bonding companies had consecutive years of substantial losses. Bonds are now harder to qualify for and rates for some classes of business have skyrocketed. Sureties have returned to more traditional underwriting methods which are proving to work just as they always have.

The CNA AM best rating & outlook changed from negative to stable. The surety and it’s subsidiaries remain at an A rating.

What does all of this mean to someone looking to obtain a bond? It means that you can expect to see the same stringent standards for suretyship underwriting for quite some time. The market as a whole grew too hungry for business and the losses incurred will be a lesson not soon forgotten.