Posts|August 30, 2022
More Than Just a Bond: The Real Value of a Professional Bond Broker
By Jase Hamilton
Surety Department Manager CPCU, AFSB
Like most industries, the range of professionals in the bond broker marketplace varies widely and with it so does the potential services, products and overall value received. Unfortunately, most contractors do not realize this difference in value from one broker to the next until it’s too late and the impact on their business has already been done.
As the gatekeeper to surety credit, the bond broker plays a vital role in the bonding process; not only by obtaining and negotiating surety credit for contractors but by becoming a valued business partner and key contributor to helping the business grow, just like an insurance and risk manager, attorney, CPA and banker.
A professional bond broker must know the surety industry from an underwriter’s perspective. Each surety company maintains its own underwriting guidelines to effectively prequalify a company. The best brokers know these guidelines in and out and will leverage them to match clients with the best surety company to fit their unique bonding needs. This difference is not only reflected in the ability to obtain basic bond approvals but can also be seen in the overall program size, premium rates and terms and conditions obtained.
A broker should have expertise in the following underwriting areas.
- Financial accounting, specifically construction accounting and the capacity to understand financial statements, work-in-progress and cash flow schedules.
- Analyzing financial statements to determine key underwriting ratios including working capital and net worth.
- Evaluating and advising on current industry benchmarks and trending reports.
- Obtaining authority to issue bonds on the surety’s behalf and maintaining key relationships with the surety company decision-makers on various levels.
- The current surety markets, including the various rates, market tools and available options on a regional and national level.
In addition to understanding the surety industry, a professional broker must have an intimate understanding of business management and construction. This should include contracts and construction law, business development, continuity and succession planning as well as the nuances of local and regional market conditions. The best surety producer should be one of a contractor’s first calls and a soundboard to ensure the contractor is making the best business decisions.
A broker should have expertise in the following business management and construction areas:
- Comprehensive understanding of the construction industry on a local and national level;
- In-depth understanding of construction management and controls including estimating, the bid process, job costing and closeout;
- Providing business risk mitigation support including human resources, risk control, claims management and contractual risk transfer strategies;
- Experience in continuity and succession planning;
- Contracts and construction law including local, state and federal statutes; and
- Supporting local and national trade associations.
Finally, the best bond broker should be honest and have a sincere interest in seeing the company—and the business owner—succeed. If a contractor feels the broker is more interested in booking premiums over being a true business partner, it may want to consider making a move. Partnering with a professional bond broker can have a huge impact on the trajectory of a business and personal success, so choose wisely.
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