Who Can Sell Surety Bonds?

The principal of a surety bond (business owner or contractor) cannot purchase a surety bond directly from the surety carrier. Most principals are unaware they can purchase surety bonds from the same insurance agent who sells their commercial insurance. Making the process of purchasing a surety bond more complex, most insurance agents are unaware they can sell and earn commission on surety bonds. The principal must purchase the surety bond through a licensed insurance agency, agent, or brokerage. An agent, agency, broker, producer, or brokerage must have a Property and Casualty license in order to be paid commission on surety bond premiums.

Oftentimes, the underwriter who assesses the risk with surety bond applications for the carriers does not have a P&C license, as they are not earning commission on their bond sales. Insurance regulations are different in each state but all require that any insurance producer or agent earning commission on surety bond premiums have a P&C license. Earning a salary or bonus does not constitute earning commission. As long as a surety producer or surety broker works for a licensed brokerage or agency with at least one owner or employee being licensed in the state in which the bond is sold, commission can be earned from a surety bond. Oftentimes, the surety carrier will require the surety brokers with power of attorney to have a P&C license before they are granted power of attorney to issue bonds. Surety agents and producers without power of attorney will have to purchase bonds from the carrier or the brokerage on behalf of their clients.

Insurance agents who are unfamiliar with surety bonds should secure an appointment with a trusted surety bond broker. Surety brokers are often appointed with dozens of different surety carriers. Having multiple surety appointments allows the broker to secure the lowest premiums for the appointed agents and clients. An insurance agent can secure their own surety appointment without using a broker. However, if surety bonds are not a big piece of their business, most retail insurance agents will not be able to secure appointments with sureties that have the best premiums. This can cause the insured clients to shop surety bond rates and possibly move their entire commercials book of insurance business to the agent who can handle their insurance and bonding needs.

Different surety carriers have varying standards for their surety appointments. Some may require a minimum volume amount or they may only appoint brokers/agents who are experts in the surety bond industry. If an insurance agent who is unfamiliar with surety secures an appointment directly with the carrier, it can lead to some negative outcomes. Surety underwriters tend to frown on incomplete applications, applications with missing supplemental documents, and surety bond applications that do not match their appetites. This can lead to longer application process times, higher rates, and a decline in service. Surety carriers, who appoint all agents regardless of experience, tend to have a more automated system in place. Applications are sent to a general inbox or can be submitted online, usually without ever consulting with a surety underwriter. These applications can often take weeks to quote.

Securing an appointment with a surety broker such as Allied American Underwriters, a division of USG Insurance Services can allow retail insurance agents to have the best of both worlds. When becoming appointed with USG, retail insurance agents can offer their insureds a fast application process, the most competitive quotes, and a surety broker to answer all questions and set realistic expectations. This allows the insurance agent to focus on assisting all of their clients’ insurance and surety needs, without all of the back-end work of remembering each specific caveat of the 13,000+ different types of surety bonds. Insurance agents appointed with USG earn commissions and have access to easy bond payment portals and additional educational resources from interacting with a surety broker directly.

Empowering Insurance Agents with the Power of Surety: Step 1

Surety bonds are not the most common product in an insurance agent’s commercial book of business. Many insurance agents are unaware they are able to fulfill their insureds’ surety bonds needs. Even more, insureds are unaware they can purchase their surety bond through their insurance agent! It’s time to change that! A multiple part blog series will cover the various aspects of surety bonds that agents need in order to empower themselves.  With the proper knowledge, agents will develop the confidence to penetrate their existing book of commercial business, as well as attract new commercial insurance business by offering surety bonds.

The first step is becoming appointed with a surety or a surety bond broker, such as Allied American Underwriters (AAU), a division of USG Insurance Services, Inc. Some sureties will appoint retail insurance agents to submit bond applications directly. Other sureties are more selective with which agencies they will appoint. A surety that values top-line growth will appoint as many agents as possible. In order to protect their bottom line, these sureties may not be able to underwrite every type of surety bond and must enforce higher underwriting criteria. These sureties tend to have a general email for agents to submit submissions or online platforms, allowing agents to do all of the work. Sureties that value their bottom line will be more selective with appointing agents. An appointed agent will often have an individual underwriter assigned to them, to personally review each bond submission. Underwriting tends to be more relaxed and a variety of bonds can be underwritten. These sureties are selective, as they must appoint agents who are familiar with surety bonds and the specific appetites each surety has.

A way for retail insurance agents to have the best of both worlds is to become appointed with a surety bond broker, like AAU. By using a broker, agents can have access to all types of surety bond markets, underwriting styles, and free up their time and resources for commercial insurance business. Agents who are appointed with a broker still earn surety commissions and fulfill their client’s needs, despite their credit or backgrounds. AAU is appointed with 24 surety carriers and can place all types of bonds with varying degrees of risk.

Surety Bonds vs. Insurance

The distinction between insurance and surety bonds isn’t always clear, so we’ve created a visual showing the differences and similarities between the two.

Insurance-vs-Bonds_Venn-Diagram_01

The surety and insurance industries use the same concepts when placing business, but use different terms to describe each concept. Here are some of the most common surety terms translated for the insurance industry.

Surety Term Insurance Term
Principal Insured
Surety Insurer
Rider Endorsement
Execution Binder
Bond Certificate of Insurance
Penalty Coverage Amount