Do you need a surety bond for the first time? Or are you curious how to find better rates and services from your surety provider? Either way, you’re in the right place.
As a reminder, a surety bond is a three-party agreement between a principal, an obligee, and a surety. The principal is the party applying for the bond (typically a business owner). The obligee requires the bond to ensure the principal fulfills their obligations. The surety issues the bond and backs it financially if there’s a claim.
Surety bonds are typically required by government agencies, financial institutions, and other businesses to ensure that contractors, fiduciaries, and others will fulfill their obligations.
Learn more about bond basics in our previous guide: “What Is a Surety Bond?”
Today’s blog post covers everything from what surety bond companies are and why they exist to how to find the best ones out there. Let’s get started.
What are surety bond companies?
Surety bond companies are financial institutions that specialize in issuing surety bonds. They’re a type of insurance company that may perform several tasks, including:
- Underwriting and issuing surety bonds
- Managing claims
- Working with individuals and businesses to provide the protection they need
They work with principals to assess their risk and then issue bonds tailored to the specific needs of the obligee. Surety bond companies play an essential role in the financial system by helping to ensure contracts are fulfilled, and financial obligations are met.
Note: Generally, surety companies don’t deal directly with customers but work with agencies to sell surety. To learn the differences between surety bond companies and direct surety providers (like ZipBonds), check out our guide, “Where to Get a Surety Bond.”
How do I choose a surety bond provider?
When choosing a surety bond provider, you have several factors to consider:
- Reputation: Ensure the surety bond company has a solid background and reputation. You can check online reviews or ask for recommendations from people you know and trust.
- License and Authorized: Make sure the surety bond company is licensed and authorized to do business in your state. You can check with your state’s insurance department to verify their license.
- Experience: Make sure the surety bond company has experience issuing surety bonds. You can ask about their experience in your specific industry as well as the types of bonds they typically issue.
- Knowledge: The company should be knowledgeable and able to answer your questions regarding the bond terms or process.
- Rates: Does the surety bond company offer competitive rates? You can get quotes from different providers before choosing the one you’d like to partner with.
What do surety bond companies do?
Surety bond companies play a crucial role in the business world. They provide the financial backing that allows individuals and businesses to operate legally and ethically. Here are some of the key functions of a surety bond company:
1. Selling Surety Bonds
The primary function of a surety bond company is to sell surety bonds (through a third party – a direct surety provider or agency – like we mentioned above). Bonds are contracts that guarantee the bonded party will fulfill their obligations to the obligee.
Surety bond companies issue a wide variety of bonds, such as:
2. Setting Premium Rates
Surety companies determine the premium rates for the bonds they issue. Premium rates are based on various factors, including:
- The bond amount,
- The risk associated with the bond, and
- An applicant’s financial strength.
3. Approving or Denying Applicants
After reviewing bond applications, a surety will approve or deny them based on each applicant’s financial strength, creditworthiness, and other factors. This process ensures that only those who are financially responsible and able to fulfill their obligations are issued bonds.
4. Underwriting Bonds
Sureties can underwrite bonds by assessing the risk associated with the bond and setting the premium rate accordingly. This involves reviewing the applicant’s financial and credit history and other factors that may impact their ability to fulfill their obligations.
5. Managing Bond Claims
If the bonded party fails to fulfill their obligations, the obligee may make a claim against the bond. Surety bond companies manage these claims and work to resolve them promptly and efficiently. They will pay the obligee up to the bond amount if the claim is valid. Then the surety will seek reimbursement from the bonded party.
6. Renewing Bonds
Sureties also handle bond renewals. This involves reviewing the bonded party’s financial and credit history and renewing the bond if they continue to meet the company’s underwriting standards. Many bonds must be renewed annually to remain active.
ZipBonds Works with Top-Rated Surety Bond Companies
At ZipBonds, we pride ourselves on being a top provider of surety bonds. Our team has years of experience in the industry, and we work with a wide range of clients, from small businesses to large corporations. We offer competitive rates and fast, efficient service, so you can get the coverage you need as quickly and easily as possible.
Contact us today to learn more about our services and how we can help you with all your surety bond needs.