Translating the Top 5 Most Cringeworthy Surety Conversations

This post is part of a series sponsored by Old Republic Surety.

As an independent insurance agent, you’ve probably had an awkward moment or two with clients. They’re good learning experiences. In this article, a seasoned surety bond manager shares his own awkward conversations with clients and what they really meant. You’ll find them instructive as you begin to build your agency’s surety book of business.

As bond managers, we always look for ways to help our agents, contractors and project owners better understand surety. It can be a pretty arcane subject, and not everyone who has a hand in the process is familiar with bonding. But that doesn’t mean we still don’t get the occasional cringeworthy moment! It just underscores how necessary education still is in the bonding world.

Here are my top five cringeworthy surety conversations and their “translations.” Maybe you have your own list as well.

1. “We don’t need a bond. We only need a prequalification letter.” Translation: Why buy the cow when you can have the milk for free?
   In this case, the project owner wants the surety to prequalify the contractor without securing a bond. Owners have this notion that if a surety has looked at an account, it must be secure. However, prequalification letters don’t provide the same in-depth underwriting required for a bid or performance and payment bond. The basis for these letters can be as simple as a credit report. There is no contractual obligation as there would be with a bond. And in the event of a default, there is no protection.
2. “The owner only wants a bond for a certain percentage of the contract.” Translation: The owner wants protection but doesn’t want to pay for the coverage.
   Our follow-up question is usually, “Exactly what part of the project are you asking us to bond (which we are happy to do, if you break it out into its own contract)? As a practical matter, bonding a percentage of a project doesn’t make sense. The surety is on the hook for all aspects of the contract, and that’s how we’ll underwrite and price the bond. Moreover, the cost for the bond is likely being passed on for the whole contract, not just a percentage.
3. “Here’s the account. Give me your best offer.” Translation: This account is going out to multiple sureties, and may the best company “win.”
   Winning from what perspective? Capacity? Relationship? Expertise? Did anyone ask the client what winning means to them? Did they get a chance to meet an underwriter and feel comfortable? A few things to note:
   • Rates are almost always passed on to the owner as part of the job cost.
   • Rate differences rarely determine whether a contractor is the low bidder.
   • If an account was picked up based on rate, it will likely be lost on rate. Competition is healthy in any industry, but contract surety shouldn’t be treated as a commodity.

4. “Can you quote this bond?” Translation: The agent may not be familiar with the surety underwriting process.
   We usually hear this due to a lack of expertise, not because of rating. Surety companies have different appetites and business capacities, and experienced bond producers know which company will be the best match for a contractor. Establishing bond credit (and eventually agreeing on a rate) is a process that is built as much on character and relationships as it is on financial capacity. The value of a surety-dedicated producer is in their knowing what underwriting questions to expect and working with the surety to get the best overall fit.

5. “I just need a decline on this.” Translation: I know this contractor won’t qualify for a bond, but I need to be able to tell them I’ve checked with a few sureties.
   Sometimes explanations from a surety as to why a bond can’t be written are helpful. Even more beneficial are the steps they can implement to obtain surety credit. In certain cases, we can get creative and find a way to write the account, or at the very least recommend a producer or market that specializes in difficult-to-place business.

Old Republic Surety enjoys working with all levels of expertise. The more we can educate everyone about our industry, the greater the value we can generate. Let’s hear your cringeworthy moments, but let’s do what we can to eliminate those conversations.