Surety Bond News

The world of surety seems to be doing just fine amidst the down economy. There are still a lot of construction jobs available and many bonds to be written; but could the healthy appearance of the surety industry be somewhat of an illusion? (more…)

Legislatures in Texas have enacted a new law directly affecting the surety bond industry. When one looks at the changes included in the bill, it’s hard to see what it actually accomplishes; it raises the question of whether the legislators writing laws affecting the world of surety have adequate knowledge of the industry.
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The surety bond industry has been stubborn when it comes to any kind of change. For the most part, things have been done the same way for years while ignoring technological advances. As of recent, companies have begun to embrace the digital age and have been harnessing it to improve and evolve the industry.
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When looking for a company to provide a service, anything from purchasing your new car to planning your next vacation, it’s important to know that you’re dealing with a legitimate one. Certain rules are in place in order to dodge sketchy businesses; some Florida legislators are working to pass a new law that terminates these safeguards that are there to help protect the public.

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There are countless clients calling us at JW Surety Bonds who are surprised and even frustrated when they find out how much a bond will cost them. Many of these customers have had bonds years ago claiming they only had to pay a fraction of what they are being asked to pay these days; what many people don’t understand is that the surety industry has a consistent pattern when it comes to bond underwriting.

Commercial and contract bond underwriting was very lax several years ago; but in this article I’ll be speaking on commercial bonding. There was a flat rate that would be charged for most commercial bonds which mostly depended on the type of bond and amount. No matter what the client’s financial condition was, whether good or bad, bond premiums were pretty consistent. As a result of sureties writing bonds so laxly, an influx of claims arose against the bonds. The claims were a lot of stress on the surety companies because they were the ones backing the bonds and any claims that arose. Although the surety company will go to the client with the bond claim for reimbursement, many clients couldn’t pay the claim because of their weak financial condition which was not researched prior to the bond issuance. This made the surety companies become much stricter when it came to assessing clients in search of bonds, specifically when it came to their financial strength and responsibility.

Let’s fast forward a bit to the present. Now, as oppose to charging flat bond rates dependent on the bond type and amount, it’s now based off of the client’s financial strength which is strongly based off of credit, personal, and business financials. The surety company will look at your credit history, which is used as a gauge as to how you handle financial responsibility. Depending on your credit history, the surety will charge a percentage of the bond size (roughly 1-20%). Now should you be a client with bad credit who had a bond a few years earlier before sureties became more stringent, you will more than likely see a large increase in the cost for a bond because it’s no longer a flat rate bond premium but a percentage of the bond amount calculated using your credit history and financial responsibility.

Many people find this increase in bond cost unfair. When it comes down to it your credit history is an efficient way to assess how you handle your financial obligations; this helps assure that if a claim does arise, you‘re not only capable but willing to pay the claim. The surety industry is cyclical; there is a back and forth pattern when it comes to bond premiums and approvals. Sureties will go from being very lenient, selling bonds and approving anybody and everybody, many claims will arise from these bonds costing the sureties thousands, which will then result in sureties becoming much stricter when it comes to bond approvals. Once the surety’s approval process is more conservative, they bring in much less money which forces sureties to slowly become more lax. At the moment, we seem to be somewhere in the middle of this cycle.

Changes in the surety bond industry are few and far in-between, but the conservative/non-conservative bond approval cycle is one consistent element that shifts in the surety industry. Credit based bond premiums are much more sound and accurate when dealing with financial accountability and potential claims. Although it doesn’t happen often in the surety world, change is welcome in our eyes because it has often facilitated innovation within the industry.