Agents can play a central role in identifying carriers and matching their surety appetite to their clients. Here are three ways agents can add value with surety.
A year after the upheaval of the COVID-19 pandemic began, the surety market appears to have weathered the storm. As the pandemic wrought uneven economic devastation across the country, many agents have been forced to consider diversifying their repertoire of products.
After the collapse of U.K. construction giant Carillion in 2018 sent shockwaves throughout the global markets, the need for quality surety bonds issued by well-capitalized surety carriers was brought to the forefront. In a market not easily understood by many, agents can play a central role in identifying carriers and matching their surety appetite to their clients.
Here are three ways agents can add value to their client and carrier relationships with surety:
1) Know your carriers and their appetites. Establishing a relationship with and understanding a carrier's appetite for surety is essential. In some instances, relationships with a carrier will extend over 20 years, so it is essential to “know your customer, know what their needs are and know your sureties—and make sure you're aligning yourself with sureties that are going to be around for a long time," says Brian Beggs, executive vice president, surety, U.S Insurance at Sompo International.
Do the groundwork, understand your clients' needs and requirements, and “try to make the best match between market and client so that it could be a long-term thing," agrees Gary Stumper, national surety leader, Westfield. Once the relationship is established you “don't have to keep moving the client around because when you move them around, all you're doing is spending time, energy and money—and not generating new income."
2) Know your niche. Surety has been described as a profitable line of business for carriers and agencies alike. However, “many agents will attempt to do surety on a part-time basis, which could jeopardize the insurance premiums the agency enjoys in the long run," says Brenda Risa, vice president, Goldleaf Surety Services LLC. “The key is to have experienced staff that are extremely familiar with the surety product and what each surety has to offer."
“If an agency is unable to get the surety bond placed, the account may go looking to other agents who can get them the bond," Risa says. Once another agency is involved, there is a good chance “they will be going after the contractors insurance premium due to the fact that the insurance premium is much bigger than the bonding will ever be."
Bond wording is a key element of surety products and this is an area where agents play a central role. In reviewing and understanding the insurance requirements in the contract wording, agents should “get the surety carrier involved if they are not sure of the requirements," Beggs says.
“The contract forms dictate the obligation and the bond forms follow up, so it's really important to protect clients by reviewing those contracts and bond forms to make sure there's no onerous wording in there," he continues. “There can be all kinds of terms and conditions included that really increase the risk to the contractor."
3) Be consistent. Agents working within the surety market know their carriers, “they have markets that they're already doing business with, or that they're maybe looking to do business with," Stumper says.
Yet, they need to be continually evaluating the market. “They need to have conversations with their surety companies—review their financial performance," Stumper says. “What are they doing to invest in people? What are they doing today that was different from last year? Are they being impacted by any external or internal forces like management or reinsurance companies?"
Any changes could potentially influence the terms and conditions offered and “that's not always good for an agent or their client," Stumper adds.
There's a lot of consolidation within the insurance and brokerage world on an ongoing basis, even as the mega merger between Aon Plc and Willis Towers Watson hit a roadblock with a lawsuit from the U.S. Department of Justice. While mergers create a certain amount of opportunity, it can also create turmoil for agents who need to “ask pointed questions and find out what a newly merged company's strategy is in terms of surety," Beggs says.
“If done properly, surety is probably the most lucrative line of business on a dollar-by-dollar premium basis there is," Beggs says. “If you're writing a lot of property-casualty lines or inland marine lines where you have a presence within the energy and constructions markets, it's a great complementary line that will produce very strong results year after year."
Olivia Overman is IA content editor.