By Shire Lyon
Are you feeling confused about the insurance broker bond you were told you need to have? Don’t worry, many professions are required by state laws to be bonded in order to operate, and getting bonded is easy.
In general terms, surety bonds are a type of insurance meant to protect the public, assuring regulations will be followed and contracts carried out. As an insurance broker, you may be required to purchase a bond to protect your clients and operate legally.
Insurance broker bonds may be necessary either at the company or individual level depending on the requirements of the states where you intend to do business.
If you are an insurance broker, or just someone wanting to learn more about insurance broker bonds, then you’ve come to the right place. Below is a beginning-to-end explanation of what these surety bonds are and how to obtain one.
Protect your clients with insurance broker bonds
You may be asking yourself why you need an insurance broker bond. The short answer is because it’s the law. State governments often require bonding as a prerequisite to licensing.
This type of surety bond is meant to safeguard consumers against brokers who operate in a fraudulent and/or unethical manner. When a broker violates the law, a client can make a claim against the bond and if it’s found to be valid, the client will be compensated.
Some examples of wrongdoing that the bond would cover include fraudulent acts such as collecting premiums but not submitting to the insurance company or creating false invoices to inflate premiums on existing policies. The exact behaviors which could result in a claim vary by state.
Each state has different rules regarding how brokers need to be bonded. For some states, the company holds the insurance broker bond, but in others, each individual broker within a company must be bonded. It’s important for you to verify state stipulations on these surety bonds, and that’s easy to do when you consult a state-by-state bond guide.
Which types of insurance professionals need bonds?
There are several different types of insurance professionals who need surety bonds. Third party administrators, insurance agents, insurance adjusters and surplus lines brokers may need to carry an insurance bond. Again, it’s important to contact your state to find out how things stand for your individual situation.
How to apply for an insurance broker bond
Now that you know what an insurance broker bond is and what it’s for, you’ll need to know how to get one.
First, you’ll need to decide on the surety bond agency you’d like to use. It’s a good idea to search reviews before choosing. You should know that a bonding agency usually doesn’t underwrite its own bonds. The agency is appointed by surety bond companies, which typically perform the underwriting.
It’s beneficial to find a bonding agency that is a managing general underwriter (MGU), who is responsible for underwriting and will educate you on surety bond claims. MGUs have faster approval processes and will act as your claims advocate should you ever have a claim.
Once you choose your agency, check to see if they sell insurance broker bonds, since not all agencies sell all bonds. Most agencies have online application forms, so you can probably complete this part of the process from the comfort of your couch.
Before you ever press “Send” on that application, be sure your invoices, bank statements, and other paperwork are in order, since you could be asked for any or all of these once the process is started.
Shire Lyon is a writer with an interest in business and surety bonds. She writes on a variety of topics and loves sharing her knowledge of law changes, licensing and bonding rules, and explaining the surety bonding process to small businesses. Shire may be contacted at [email protected].