Commercial surety bonds are used to protect consumers against fraud and misrepresentation and to compensate them for potential financial loss.
In many cases, commercial surety bonds are required to satisfy or guarantee fiduciary obligations, governmental legislation, or the private contractual obligations of the applicant or the principal under the bond.
Bonds are also required by some courts or government agencies, often as part of licensing processes or requirements for companies or individuals. In some cases, they are also required by financial institutions or private corporations.
While this is the traditional perspective on the surety marketplace, there are some emerging trends changing the way commercial surety bonds are used.
Common types of bonds
Before discussing the key changes in the commercial surety area, here is a quick overview of the major types of bonds:
License and permit bonds – These products are highly transactional and compliance-focused. The penal sums for these products are usually small.
Customs and excise bonds – These tax bonds are generally used by companies to defer payment of taxes to government agencies.
Fiduciary bonds – These court bonds are used to guarantee the fiduciary obligations of a guardian, executor or conservator.
Performance bonds – These types of bonds are commonly used to guarantee the performance or service contained within the terms and conditions of a contract, excluding construction contracts.
Changes in the commercial surety business
The commercial surety landscape is changing and as we look to the future, we can identify some key trends that will alter the way commercial surety products will be used going forward.
More private sector uses – The types of bonds mentioned above will largely remain as they have traditionally existed, but the places where those commercial surety bonds are being posted are changing rapidly.
For instance, while commercial surety bonds have traditionally been posted to government agencies, an emerging trend is seeing those bonds required for the private sector, including private sector seeking to transfer their risk.
Commercial surety bonds provide a unique value to private sector companies: they offer an elevated or preferred status among their industry peers. They can also be used to mitigate risks to a third party without incurring internal costs.
In many cases, these requirements come though associations or agencies that aim to provide added benefits and risk management to their members.
Customization in commercial surety – As the types of organizations required to purchase commercial surety bonds changes, the way those products are developed and delivered changes as well. It’s a natural part of business growth: the marketplace becomes more complex, and as a result, commercial surety bonds are no longer a “one-size-fits-all” type of product. Different industries have different needs, and products must be customized to accommodate those industry-specific requirements.
Replacing conventional forms of security – Commercial surety bonds are increasingly being used to replace conventional forms of security such as letters of credit or cash deposits. Increasingly, all parties are accepting bonds and viewing them as a way of transferring their risk to a third party: the surety company.
Greater efficiencies – The manner in which commercial surety products are produced and delivered also offer real benefits for both the principal and obligees, allowing them to increase efficiencies by saving the internal resources associated with assessing and monitoring the risk.
The future of commercial surety
As the industry continues to change, Trisura will continue to provide innovative, competitive and responsive solutions to our customers’ needs.
The Trisura difference
Two things set Trisura apart from other surety companies, and make us exceptionally well-positioned for the future of commercial surety: automation and customization.
Automation – The Trisura Bond Portal helps companies, brokers and Obligees automate their existing workflows, providing for greater efficiency and resulting in greater profits.
Using the portal greatly speeds up the underwriting process by allowing businesses to complete applications and submit documents online. In addition, the portal allows organizations to take advantage of easy online payments and quick document generation, creating superior user experience that is immediate and cost-effective for everyone involved.
Customization – Trisura is also leading the way when it comes to creating new custom surety products. We innovate to offer our customers the products they need to mitigate risks and operate more efficiently in the modern business environment.
We understand that all businesses are different, and therefore have unique requirements when it comes to commercial surety. As a result, we strive to offer custom-tailored products and programs which meet the specific needs in various industries.
To learn more about the automation and customization offered by Trisura and how it can help you prepare for the future of commercial surety, contact us today.
Pina Mazzoli is responsible for broker relationships, underwriting and product development for Commercial Surety on a national level.