By Todd Bryant
If you’ve been around the insurance business for a while, you surely have had to post an insurance broker bond at some point.
The security requirement is often a part of licensing criteria for insurance agents, adjusters, third party administrators and surplus line brokers. It is used across industries to safeguard the interests of the general public. In the insurance business, bonds protect consumers from unethical and fraudulent broker behavior such as fake insurance policies, inflated premiums or encouraging falsification of financial information.
For insurance brokers, being bonded is a sign of their trustworthiness and legal compliance. But getting bonded may seem like a complicated and expensive endeavor if you’re not acquainted with the intricacies of the bond price formation.
Yet it doesn’t need to be so. Obtaining a bond is a straightforward process, and saving on the bond costs is possible. If you are required to get an insurance broker bond to comply with state regulations, here are the top tips that will help you save on your bond.
1. Polish your personal credit situation.
Saving on your insurance broker bond starts with a thorough understanding of what affects the formation of your bond price. For sureties issuing your bond, your personal credit score is of utmost importance. It’s one of the main criteria for assessing whether you are a risky applicant to bond.
That’s why the first step to paying less for bonding is to take care of your personal credit. Covering old debts, judgments, tax liens and child support expenses will boost your financial stats. Keeping your overall credit in control is also key, as excessive borrowing is a problematic sign for sureties.
Don’t forget to check your credit report regularly. Make sure there are no mistakes or pending issues that have not been updated in that credit report. If there are issues or mistakes, take action to resolve them quickly.
2. Showcase the strength of your business.
The next factor that sureties consider when reviewing your bond application is the solidity of your business. This includes your finances, the quality of management and your experience in the industry.
It’s important to demonstrate that you have sufficient liquidity. For your bond agency, this indicates whether you can pay a potential claim or not. You can convert short-term loans into long-term debt to increase your liquidity, for example. As a result, your working capital will increase, which is a positive sign for your underwriter.
When completing your bond paperwork, it’s also helpful to include information about any assets you might have. They represent an extra guarantee that you would be able to cover claim expenses if such a situation arises.
Last but not least, your surety would be interested in your professional experience. If you have a solid track record in the insurance business, this counts as a positive factor. For sureties, it means you have sufficient knowledge and managerial skills to handle your company.
3. Get your U.S. citizenship if you don’t have it.
If you don’t have a U.S. citizenship yet, arranging your paperwork and obtaining it would be a great help in your bonding process. One of the most important considerations of surety agencies when assessing your bond application is whether you are reliable and financially stable.
If you are not a U.S. citizen, sureties might see you as a high-risk applicant. The logic is that you might not have strong enough ties with this country to motivate you to stay in the U.S. in case you need to pay a bond claim. To counter this issue, you can go through the process of obtaining your citizenship. This will decrease the perceived risk of getting you bonded, which will lower your bond premium.
4. Find the right surety agency for your needs
How much you will pay for your insurance broker bond does not depend solely on your financial situation. The ability of your surety to find good bonding rates and matching bonding programs matters as well.
When selecting your surety agency, it’s important to look for an experienced player. The best option is to choose an underwriter who is well-versed in issuing insurance broker bonds. This will guarantee you that the surety knows the intricacies of this type of bonds and would be able to handle difficult cases or even claims if the need be.
On a more general level, make sure that the agency you choose works with A-rated and T-listed surety companies, as this ensures the bond backing is solid. The more diverse its partnerships are, the more bonding options it would be able to offer you.
As these tips illustrate, paying less for your insurance broker bond starts with a solid understanding of the factors that affect the bond cost. Although working with credit scores and business finances requires effort, in the long run, it brings your company benefits on all levels for your company, including a lower bond premium.
Todd Bryant is the president and founder of Bryant Surety Bonds. Todd may be contacted at [email protected].
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