It’s been nearly 85 years since the Miller Act was enacted. In short, this federal regulation—along with a number of similar state-specific acts—requires principal contractors on public and municipal projects to post bonds that guarantee performance and payment to subcontractors and material suppliers. The guarantee can often find its way onto private, commercial jobs as well, depending on the owner’s or lender’s demands.
These surety bonds are not insurance. Rather, they are a three-party guarantee between the principal contractor, the obligee, such as the town or other public entity hiring the work, and the surety company. Surety bond wholesalers facilitate the arrangement and, similar to obtaining a bank loan, will request much of the same financial information, such as financial statements, tax returns, lines of credit and contract details.
Needless to say, and because of both the amount of detail required and the sensitive information involved, it’s important to choose a reliable wholesaler to support and coach you and your client through the process.
Here are five ways surety bond wholesalers benefit commercial insurance agents:
1) Expanding your range of services. As a commercial insurance agent, you may already offer some surety bond services. But, there are more than 25 different markets for surety bonds, each with different requirements depending on the project at hand. Some are trickier and more involved than others.
An experienced wholesaler has access to relationships with a wide variety of surety companies, increasing the likelihood of identifying a happy home for bond placement and keeping all bond deals under your control. Without this partnership, you risk another competing insurance agency coming in and servicing the bond needs of your customer.
2) Increasing your revenue. The more bonds you write on behalf of your clients, the more revenue you generate. A surety bond wholesaler will pay you commission for each deal closed, which will open an additional revenue stream for your business.
And don’t worry about the wholesaler “stealing” your clients. Specialized wholesalers don’t sell insurance; their objective is to simply close bond deals. Partnering with these firms is simply a way of outsourcing and expanding your business.
3) Making the process turnkey. As with any contract, establishing a surety bond requires a lot of technical details and paperwork, all of which needs to be done properly. In addition, the bond itself needs to be presented to the surety who will either approve or deny the application.
The surety bond wholesaler is responsible for translating the contractor’s information into a format most readily understood by the underwriter, as well as identifying and interacting with appropriate surety companies.
Most wholesalers are willing to work either directly with your client, reducing the need for your time and involvement, or through you in more of a “back office role.” Whatever the specifics, the wholesaler works to make the process as hands-off and turnkey as possible for you and your staff.
4) Maintaining your client accounts. A surety bond wholesaler is dedicated to the bond-writing process. As a result, they are in a position to get the best terms and rates for your clients. If you attempt to write the bond yourself, you’re unlikely to do as well, which leaves you exposed to a more experienced competitor undercutting the deal.
5) Positioning yourself as a trusted advisor. As a commercial insurance agent, you strive to do more than just write policies. You are an advisor to your clients, helping to guide their financial decisions and ensure that they are protected against unforeseen events and circumstances.
Using a surety bond wholesaler to make the client an attractive prospect to a potential surety bond company complements your work, reinforcing your position as a trusted advisor. For example, the wholesaler may help obtain an additional line of credit with a bank or make recommendations regarding overall cash flow. These things make your client stronger and better positioned beyond their immediate bond needs, which reflects favorably on you.
Federal and state regulations require surety bonds for a wide range of projects and many of your clients will need them on an ongoing basis. Working with a surety bond wholesaler takes the hard work off your plate, generates revenue for your company and improves your ability to service your clients, today and in the future.
Matt Leskanic is a surety executive at Massachusetts-based Surety Bond Professionals, a bond-only agency with access to over 25 different surety markets allowing for the largest programs and most competitive terms for contractors.