The surety bond market is currently conservative and hesitant to write anything out of the ordinary. It is rare to hear about bonding companies taking risks on new ideas, especially ideas that involve new technologies. Suretyship, in general is behind the times. I was pleased and surprised when I heard about buySAFE, a program to bond goods purchased online for up to $25,000. Liberty Mutual is the primary surety backing the program, a surety known for being conservative (like all stable carriers). Hopefully, the buySAFE program will encourage other companies to embrace technology and other new ideas to expand the surety bond market.
The soft bond market at the turn of the millennium had many sureties writing bonds that well exceeded what principals qualified for. As a result the sureties had huge losses and the entire industry took a 180 degree turn for more traditional underwriting.
With the end of the soft market, it has become hard to sell programs to sureties that are not typical bond guarantees. The buySAFE program is precisely what our industry needs, provided it is successful. Bonding companies need to realize, jusy because an idea is new does not necessarily mean it involves more risk. If the buySAFE program is successful, sureties will be more open to other ways to expand the market. The turn of the soft bond market taught the industry some valuable lessons, lets hope the industry will not be ignorant to creative ways to grow the surety industry.
The surety industry is spending a good amount of money trying to encourage the private sector to make use of surety guarantees more often, rather than just when required for public work. Businesses are always trying to keep their costs down as much as possible, thus convincing the private sector they need surety backing is an uphill battle. It is hard to convince someone they need bond coverage unless they have been directly effected or personally know someone that has been effected. That is why most bond requests/requirements from the private sector seem to come from larger companies. Due to their size and probability they will more often be effected by lack of a bond. Larger companies also have more capital to spare to pay for the guarantee.
The buySAFE program is a big step in the right direction, progress with the changes around us. Finding creative new ways to expand the market is what is needed. The surety bond industry needs to start embracing technology. The bonding companies that do not will have higher operating expenses and lose out in the end. Let’s hope Liberty’s new venture is a successful one so the market can continue it’s expansion.
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