Usually the first question when a consumer is looking to purchase something is, “What will it cost?”. While cost is obviously important, it is not the only factor that should be considered when purchasing anything, including surety bonds. There are several items you should focus on as well, including, but not limited to: the service of the agency writing the bond, the financial strength of the surety, renewal requirements, and potential for additional surety credit.
Agency Service: An agency that lacks good customer service will be the cause many headaches. I can’t tell you how many accounts we have that left their previous agent in search of better service. I have heard horror stories of people still waiting to receive their bond weeks after they sent in payment. In our eye service that slow is unacceptable. We take pride in our turn around time, as it is the quickest in the industry. We offer instant online approval on many classes of business, while our competition may take a week just to give you a firm quote. When it comes to service, you often get what you pay for. That is not to say JW Surety Bonds is more expensive than the competition, usually the opposite is true due to our exclusive programs.
Surety Financial Strength: Bonding companies financial strength are given letter grades by AM Best. If you are in the market for a contract bond, see if the contract requires a surety with a specific letter grade. The bond is not worth the paper it is printed on if it does not meet the contract specifications. Whether you are looking for contract or commercial bonds, it is a good idea to check to see if the surety is on the Federal Treasury List. The T-List states all of bonding companies acceptable to the federal government. Typically, the first year premium of a bond is fully earned. This means there is no refund if you cancel a bond after issuance. It is vital that you check if a bond is acceptable to the obligee prior to sending in payment.
Renewal Requirements: Bonding companies differ when it comes to bond renewals. Some will request updates on the account, including, but not limited to: business financial statements, personal financial statements, and credit reports. Providing the updates is not only a nuisance for the principal, but also a potential problem. If any of the required updates do not meet the bonding companies guidelines the bond will be canceled, even if you have been with the surety for years. Other sureties will automatically renew the bond without reviewing anything. This is quite an advantage, as there is no annoyance of providing the surety with updates. The greatest advantage is the ability to have a bad year without being dropped, or taking a large owner draw without the surety complaining about a year end net loss.
Potential For Additional Bonds: In general, bonding company underwriting guidelines are rather similar. However, if you compare a more conservative company’s underwriting guidelines to a surety that is hungry for new accounts, the difference can be night and day. Some bonding companies will not write a principal if an owner has under 700 credit, while another surety will allow credit as low as 615 and still provide competitive rates. Due to the volume our agency produces, we can actually offer some classes of business at a standard rate, regardless of credit. The conservative bonding companies will often have low rates due to their strict underwriting and low claim rates. Unfortunately, a downfall of a conservative bonding company is that they also have lower total bonding capacity limits for each particular account than a liberal surety. your potential for additional bonds is important if you are looking to expand your company in a way that will require additional bonds. Our agencies exclusive programs also allow for pre-approval for your bonding needs, a nice comfort to have.
As with anything you purchase, there is more to a bond than simply the cost. Basing your decision simply on cost could present you with service problems or even worse, purchasing a bond that is not acceptable to the obligee. Renewal requirements and total bonding capacity limitations could create problems down the road and are something to discuss with your bond producer.