The surety bond market has been in a “soft market” for over a decade. This greatly benefits our clients as it offers lower premiums and broadens the appetite for sureties used in underwriting.
However, we have seen an influx of creative marketing tactics accompanying the soft market. I want to offer a couple of definitions and point out a handful of deceptive marketing approaches that are out there.
Types of surety agencies:
Captive or Direct
This is when a surety agency can only use one market to quote a surety bond. For example, State Farm is a captive. They can only write insurance or bonds “direct” or captive.
Retail or Noncaptive
This is what Bonding Solutions offers our clients; the ability to find the best bond product for our clients by accessing dozens of surety companies. Note that many retail agencies claim to be “direct” when they are, in fact, retail agencies that are either owned by or have programs that allow underwriting authority. By this definition, Bonding Solutions is technically “direct” because we participate in losses, offer proprietary programs, and have extensive underlying authority. That being said, we are still a retail agency.
Three ways to access buying a bond:
- Through a captive agency (one market to offer quotes)
- Through Retail Agency (dozens of markets to offer quotes) – Bonding Solutions is a retail agency
- Or through a multiple-brokered arrangement (an insurance agent uses a third-party agency to access bond markets or programs)
We often see fake invoices sent by surety agencies. These “invoices” can come via email and are most commonly sent in a letter. They will offer insane pricing or illegal payment plans. For example, most bonds carry cancellation clauses set by the state or federal government. If that is 90 days, then you cannot offer 12 equal payment plans. This is because, due to the 90-day cancellation clause, 25% of the premium is 100% earned when you issue the bond.
Most of these invoicing ploys don’t end up not accomplishing the goal they set out to achieve because consumers recognize that the invoice needs to be more authentic. The invoice will often offer bargain basement bond rates that are almost impossible to qualify.
A second way we see agencies using deceptive marketing is by claiming to be a “direct” surety agency. We have scratched our heads and wondered why they are effectively using this tactic.
Our clients are generally unaware of the insurance industry jargon; however, direct sounds like you’re cutting out a go-between. Unless you need a notary bond or some other instant-issue bond, it is in your best interest to have a retail agent that can access dozens of surety market offerings. This allows your agency to offer you industry-low rates.
Surety Company Low Rates and Poor Financial Ratings
Lastly, If your bond rate is alarmingly low or something seems off, please check the AM Best rating of the surety company (not the agency) your bond is being written by. Here is a link to AM Best’s search: AM BEST SEARCH
Most governmental entities requiring your bond will demand an AM Best rating of A- or better. You want to avoid buying your bond, filing it, and then being caught out of compliance because a low-rated surety company wrote your bond.
In summary, soft markets are a plus of better bond prices and more options for underwriting, but we see a lot of shady, non-compliant marketing practices. Simply put, get to know your agent and start a long-term relationship with them. When the market turns harder, having a trustworthy, well-established agent relationship will make all the difference in your surety bond program.