Surety bonds have garnered an unfortunate reputation of being “ugly” or “uncomfortable” for independent insurance agents for many reasons.
Unlike a traditional insurance contract, which is a two-party agreement between an insurance provider and a policyholder, a surety bond involves three parties: the principal, the obligee and the surety. The principal guarantees payment or performance of its bonded obligation to the obligee and if the principal defaults, the surety will make good on the obligation to the obligee (and then seek repayment from the principal).
In many ways, bonds are more akin to lines of financial credit that banks extend to clients than they are to traditional insurance policies. For that reason, some agents have dismissed them as too complex.
But with the right surety partner, anything is possible. At Old Republic Surety, we’re there to help agents through every step of the surety transaction, from bond selection to issuance with guaranteed education, communication and hand-holding along the way.
The beauty in bonds
Independent agents could miss out on prime business opportunities if they fail to see the beauty in surety bonds.
Agents who can’t offer bonds risk losing clients to competitors. Meanwhile, those that take the plunge into surety can offer more value-added services to current and prospective clients, which can reap huge rewards in client attraction, satisfaction and retention.
The growth opportunities are significant. There are thousands of surety bonds available to help contractors in a vast range of professions ensure performance of an obligation and compliance with legal requirements.
For some agents, the sheer scope of the bond market is a catch-22 because there are almost too many options to consider. But teaming up with an expert in the space can turn that potentially overwhelming pool of products into targeted business opportunities.
It is also worth remembering that many surety bonds are quick and easy to underwrite. Agents can often satisfy their clients’ needs the same day and with a few clicks of a button through immediate-issue bond programs.
And the bonds themselves are also sticky. They typically last for the duration of a contract or project, or the coverage is continuous until canceled. This is unlike traditional insurance policies that could get shopped around on an annual basis.
Finally, there’s beauty to behold in surety bond commissions, which can range from 20% to 35% or higher in a soft market. That’s a pay rate that shines in comparison to the 10% to 15% commission agents typically earn on property and casualty insurance premiums.
Partnership is key
There’s a lot to learn when it comes to offering and issuing surety bonds, but the positives for independent agents far outweigh any challenges connected to breaking into the bond business.
Agents who consider “bond” to be an ugly four-letter word probably lack the support they need to succeed in surety. But with a dedicated surety partner like Old Republic Surety, they’ll see the beauty in bonds before long.
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