Monday, September 21, 2009

Insurance broker bonds: What agents need to know

Occasionally we ask a guest to address insurance agents on important topics. One important topic is insurance broker bonds. Our guest columnist, Kevin Kaiser, a principal with, has graciously offered to share his insights on agent bonding with us.

Like their counterparts in the mortgage business, insurance brokers can make a significant difference in the lives of their customers. But a handful of outliers can wreak havoc and upend businesses and lives. It’s because of that potential, however infrequently this occurs, that surety bonds have become mandatory for both mortgage and insurance brokers.

Surety bonds help protect municipal agencies, businesses and individuals in the unlikely event of unethical, misguided or even illegal practices at the hands of an insurance broker. Longtime brokers and agents are likely well-versed in their knowledge of surety bonds. But for new and aspiring brokers, bonding can at times prove a complex, even frustrating experience.

Here are a few things that fledgling brokers need to know about insurance broker bonds.

What bonds protect against

These surety bonds provide a layer of security for consumers if brokers take advantage of their position and expertise. Brokers or agents who engage in any of the following tactics may end up with a bond claim against them:

  • Providing false quotes or inflating figures to boost profit.

  • Encouraging customers to engage in misrepresentation on applications.

  • Telling customers it is permissible to distort their financial standing on applications.

  • Encouraging customers to buy insurance products that are inappropriate for their needs.
How to get bonded

Surety bonds are available from a host of sources, including surety companies dedicated to providing bonding services. Insurance broker bonds are considered license and permit bonds. Like many other license and permit bonds, each state Insurance Department serves as the obligee for an insurance broker bond. In other words, the bond protects the state against loss. The bond guarantees that an individual broker will follow all applicable state and local laws and regulations. Paperwork must be filed with a broker’s state upon obtaining a surety bond. A surety bond is typically required upon application for a license or a license renewal.

How to Qualify

Currently, the market for insurance broker bonds is relatively stable. These are generally seen as low-risk bonds, especially compared to other commercial bonds within and beyond the license and permit category. Surety companies will typically look at a few key indicators when examining a bond application. These include:

• Credit score.
• Financial strength and background.
• Management structure or leadership team.

For these relatively low-risk bonds, rates won’t vary considerably among surety companies. Sureties usually determine the bond premium after examining the business’s claim history and financials.

Bad credit

Even brokers with less than stellar credit can obtain the necessary bonding. Brokers with bad credit will typically utilize a surety company that specializes in working with agents with compromised credit. Given the increased risk and greater degree of underwriting complexity, these bonds will almost always cost more.

To learn more about how to obtain a surety bond, visit or email the author,

Wednesday, September 2, 2009

Agents must communicate their value

A recent survey of public sector risk managers showed two unsettling trends. 1) When risk managers were asked if they viewed their dealings with their carriers as “a significant, long-term relationship,” only 30 percent of the respondents answered that question in the highest category.

Almost half of the respondents anticipated changing carriers compared with only 36 percent in 2008, a difference of 12 percent. Seventeen percent of respondents reported a “strained” relationship with their insurance carrier and fully 22 percent were considering changing brokers. An additional six percent reported a “strained” relationship with their broker.

What does this survey reveal? Brokers and agents must work hard to keep today’s insurance consumer happy. Providing valuable client services and frequent, thoughtful communication helps insurance professionals retain their client base and build business. Contacting your clients only at renewal or when they make changes to their coverage will no longer suffice. Today’s knowledgeable consumer no longer settles solely for a commodity-based insurance provider relationship. They must able to clearly evaluate the value-added services your agency or brokerage provides. Are you reminding your clients of those services?

Insurance Writer helps agents communicate your message to your clients. Contact us at 602.870.3230 for more information.