The world of bail bonds can seem mysterious and complex. Let’s face it, it’s not like insurance. Actually, it is more similar to banking. It is not surprising that the subject is not well understood by the very people who need to know it.
In this article we’ll cover some of the basics like who the parties are and what they do to keep the topic from looking so alien.
Who is the “insured”? The insured is the party who buys the insurance. Therefore, in the surety there is no insured, but a “principal”. This is the party whose actions the link refers to. If your construction company needs a bond, it is the principal, the applicant for the bond.
The intermediary who assists you with your bond need may be a bond producer, a surety agent, or an insurance agent. In all cases, the person is authorized by the state to process surety transactions.
The business the agent works for is called an insurance agency or surety agency. This entity provides the channel between the principal (applicant for the surety) and the surety, the surety company, the surety provider and the party that has the risk.
In the tying world, the term “company” is used to describe the tying company. The agent and agency would not be referred to as “the company” even if the firm’s name was ABC Local Insurance Company Inc.
A reference to “paper” refers to the surety company. “Whose role is the agency using?” This means “Who is the binding company?”
Since the surety company maintains exposure on the bond, it is your employee who makes the decision to approve or reject it. This person is called a surety underwriter or bond underwriter.
It is true that insurance agencies can employ people with underwriting experience and their title can be “underwriter.” They may even have some element of decision-making authority that has been delegated to them by the binding company (referred to as “having the pen”). But the fact is that the ultimate seat of authority is the binding company, not the agency. It is worth knowing that when a binding agent speaks with authority about what can or cannot be done. Actually, they still have to ask the insurer for permission. They always respond to the surety in all transactions involving the surety.
When a contractor is asked “Who is your surety company?” sometimes they give the name of their linking agency. Now you know the difference!
Other areas of confusion: The owner of the construction company is not the applicant for the bid and performance bonds. In the eyes of the surety, the construction company is the applicant because it is the entity named in the bonds.
It is true that guarantors expect business owners to back transactions by providing personal compensation. However, the underwriting (decision-making) process is Performance Bonds primarily focused on the company, its history, and its capabilities. The personal factors surrounding the business owner are secondary.
We do not intend to diminish the importance of the bonding agent. The agent plays a critical role in compiling, setting up, and submitting the file for review by the insurer, and guides the process forward as the bonds are needed. When you use a surety specialist for your surety needs, you gain the experience of an industry expert who understands the underwriting process and how to present your account fairly and effectively for the mutual benefit of the applicant and the surety company.