One type of bond that has been particularly difficult to place over recent years is the Union Wage & Welfare Bond. Bonding companies are very apprehensive about writing such bonds and with good reason. What is a Wage & Welfare Bond? In this issue, we will explore these bonds, why they are so difficult to place, what they guarantee and why a principal would want a Wage & Welfare Bond. We will also disclose some helpful hints on obtaining said bonds.
A Wage & Welfare Bond is a guarantee.
Also known as a Union Wage Bond, this guarantees union fees so, in effect, it is a financial bond or guarantee. If union dues are missed over a certain period of time by the principal, they may be collected through a claim if a Wage & Welfare Bond was required by the union. With unions having their own separate dues and separate bond language, a separate Union Wage Bond is needed for each union requiring a bond.
Why are underwriters scared about writing this class of bond?
In essence, the turn of this new century brought about a major hit to the industry as a whole. While bonding companies were suffering from the soft market, a domino effect took place. Many bonding companies went out of business. Some of the survivors lost their license to bond and resulted to junk status. This left the remaining bonding companies to become ultra conservative when writing bonds. It seemed that the higher the loss ratio based on history, the less bonds were being issued. Particularly, unless you provided 100% collateral, most financial bonds were becoming extinct. One of the last financial guarantee bonds left written were Wage & Welfare Bonds. Now, higher rates are applied when writing wage & welfare bonds compared to other bond types.
Who Can Write Them?
When the soft market ended, placement of the wage & welfare bonds were becoming increasingly difficult however, these financial guarantee bonds were still being written. Agencies that specialized in this class of bonds were emerging as opposed to other commercial bonds and principals were finding these specialized agents. These agencies had the proper surety bond market that was needed to properly place the bond. A bond only agency received the business through brokers who could handle property and casualty bonds but not financial bonds types like these. Since the end of the soft market, financial guarantee bond types such as a wage & welfare bond has become harder to write. Due to their loss ratios, many financial guarantee bonds are no longer being placed. Still, wage & welfare bonds continue to be written. While this bond class is difficult to write now even more so than the past, be advised that specialized surety bond agencies are capable of underwriting. If you choose an agent not specialized in this class of bond you will run the risk of not being accepted and possibly at a higher premium.