A surety bond is often the most crucial aspect in ensuring full compliance by a principal company like a contractor. But, as an obligee, it is the surety supplying agency’s liability that concerns you. In case of any default, it will be the surety agency that will pay the liability. Hence, it is important that we pay attention to surety bond insurance company.
Today there are many agencies that supply surety bonds. Some undertake a very basic undertaking, collecting money from the principal and moving on to the next party. On the other hand, some agencies will carry out due diligence when signing on a principal party. To ensure that the surety bond really acts as a deterrent, we need to make sure that the right insurance company is selected.
Research: Ask around your neighborhood, friends and peers on the agencies they have used in the past. Make a list of these agencies and go through their website with a fine comb. When receiving a surety from a contractor or principal party, the same research must be applied.
Type of agency: Surety bond insurance companies these days come in many shapes and sizes. While some will deal only in bonds, others are part of a larger insurance company. Whatever the make-up of the agency, it must have expertise of dealing with bonds. You can ascertain this through your own interaction.
Some companies also outsource their surety bonds, acting as an intermediary between the principal and the actual surety bond company. This option will only increase the turnaround time for both the principal and obligee. It is always better to directly deal with the company providing the service.
Investigation: Some companies carry out some preliminary inspection, while some will undertake a thorough investigation of the principal company. As an obligee we must look for the latter option because such surety companies will pick principals with least risk factors. You can ask them about their screening process — do they carry out background check? How will they recover the amount if the principal defaults? You should also check out how long they have been in the business and their reputation in the industry.
Premium policy: Surety agencies usually charge a premium for underwriting a project or the principal. They will also clearly state these premiums. Check that the agency has published its rates and premiums clearly.
Certification: Finally, every surety bond insurance company is required to carry the license for providing surety bonds. You can check with your state’s insurance office, treasury department or the equivalent in your state to ensure that the company has the right license.