Surety Bonds: How AI and inflation are Impacting the Market

• By: Olivia Overman
• December 22, 2025

The global surety market was valued at $22.3 billion in 2024 and is projected to grow at a compound annual growth rate (CAGR) of 5.1% through 2032, driven by infrastructure investments, artificial intelligence (AI)-enabled underwriting, and rising demand across construction, commercial and legal sectors, according to the National Law Review. However, the market has yet to see changes caused by funding allocation for government contracts or the impact of tariffs.

The cornerstone of financial risk management, commercial bonds—including contract and commercial surety and performance bonds—guarantee that a party, such as contractors, enterprises and governments, will fulfill its contractual obligations.

The current surety market is “doing well right now,” says Beth Harbeck, vice president of commercial surety at Old Republic Surety. “It’s getting a boost from growing infrastructure projects, supportive regulations and new tech innovations.”

As economic pressures and financial conditions shift, AI is also playing a more dominant role in the economy, driving significant investment in all commercial sectors, according to the WTW “Insurance Marketplace Realities 2025 Spring Update—Surety” report.

Within the surety market itself, more than 60% of bonding professionals have integrated AI and automation tools into their underwriting processes. Additionally, 54% of underwriters now use AI-driven models to evaluate applicant risks, according to the National Law Review. As a result, surety bonds are becoming more accessible, efficient and appealing not only to large enterprises but also to small and mid-sized enterprises (SMEs), further expanding the surety market’s competitive landscape and highlighting evolving commercial surety trends.

“The commercial surety bond market has seen significant changes in underwriting practices as more carriers adopt automation and ‘instant-issue’ processes, particularly for transactional business,” says David Gonsalves, CEO at BondExchange. “However, we have seen some markets return to traditional underwriting practices in the last year due to loss development, particularly for the 2023 and 2024 periods.”

In the predominantly soft surety market, “many surety companies are no longer requiring any signed indemnity agreement for license and permit bonds under $25,000,” says Jack Anderson, president, Goldleaf Services LLC. “On the larger commercial bonds, the surety industry is also being fairly aggressive—as long as the company financials support the risk—due to the amount of excess capital in the market.”

Additionally, “with inflation pushing up construction costs, bond requirements, especially for license and permit bonds, are getting bigger and more frequent,” Harbeck says. “New players entering the market and increased competition led some companies to loosen their underwriting standards. Now, with loss ratios climbing, carriers are tightening things up again, especially in small commercial areas where the risk tends to be higher.”

While the soft market persists in the larger commercial market, the exception is private equity (PE) acquired companies, Anderson says. “PE-acquired commercial companies have long been fairly easy to get surety support for as long as the acquisition was handled somewhat surety-friendly,” Anderson says. “With PE acquisitions happening so frequently over the past 15 years, most of the attractive companies have been acquired—now the PE firms have expanded their appetite and are acquiring less attractive companies.”

And while “the commercial surety market continues to grow along with the surety market as a whole, we have seen carriers exit certain bond types and strengthen underwriting terms,” Gonsalves says. “We expect this trend to continue as the losses from 2023 and 2024 continue to filter through surety claims departments.”

When it comes to PE acquisitions of construction companies, “different rules apply when determining surety support, as contract surety underwriters do not like the goodwill line on their financial statements,” Anderson says. “Unfortunately, for most PE acquisitions, goodwill is typically one of the larger assets on the balance sheet. As a result, when a PE firm acquires a construction company, it needs to be handled very delicately to make sure that the surety is still willing to support the company post-acquisition.”

Further, the contract surety market is seeing an increase in bond claims. “For 2025, the average bond claim through June amounted to 23%,” Anderson says. “If this percentage increases to 30% or higher, then we will see a tightening of the contract surety bond market.”

Aside from construction, healthcare and renewable energy, surety bonds are becoming more prevalent in technology, environmental and transportation industries. Agents who specialize in surety bonds required for specific industries can play an important role in navigating the complexities of these bond requirements.

Olivia Overman is IA content editor.