September 10th, 2020
Surety Bonds: The Hidden Gem For Insurance Agents
Agents who leverage quality surety brokers can profitably write surety bonds and generate leads for other insurance lines.
Surety bonds offer insurance agents a unique opportunity to differentiate their agency by providing an essential business product that can lead to many other insurance selling opportunities. The problem? Surety bonds, particularly those of the license and permit variety, carry relatively low premiums and require a large time investment for the typical agent – not a good scenario for profitability! In this article we discuss why surety is important for attracting and maintaining client relationships and how agents can offer it in a profitable manner.
Why are Surety Bonds Essential to Your Customers?
Unlike most other insurance products, government agencies mandate that many businesses purchase a surety bond as a licensing requirement. Even during tough times when other insurance lines may become difficult to sell, businesses must maintain their surety bonds to continue operations.
Most surety bonds are required by state or local legislation and, unless the requirement is rescinded, there will always be a market available for insurance agents looking to grow their customer base to include surety clients.
Surety Bonds Create Leads for Other Insurance
As discussed above, many new businesses will need to purchase a surety bond before commencing operations. While this initial transaction may be miniscule, agents with the foresight to market bonds can leverage access to these new businesses to offer other core insurance lines like general liability, commercial auto, etc. Prospecting new businesses creates long-term relationships that grow over time as the insurance needs become greater.
Surety Agents Create Sticky Clients
Surety bonds create a credit relationship between the surety company and the bond principal (your client). As such, the underwriting usually involves a review of the business owner’s credit and financial statements. Due to the personal nature of the underwriting information, customers may be hesitant to provide this information; however, agents who have surety expertise (or broker partners to assist) develop closer relationships with their customers. Further, clients with significant surety needs like public-works contractors or multi-state mortgage brokers must establish relationships with surety carriers (through their agents) over time to build up surety credit. These relationships are difficult to recreate and can boost agent retention rates. This all sounds great, but why do agents shy away from this important insurance line?
Shopping for Quotes is a Profit Killer
While agents can seek direct appointments for surety bonds, the quote shopping and operations process for surety bonds can be extremely time consuming. Bonds are typically priced based on the personal credit of the business owner, creating large spreads in premium from customer-to-customer and even carrier-to-carrier. To find a competitive quote, agents can spend lots of time entering an application into 3 different outdated or even paper carrier applications, sometimes with no success! With premiums averaging around $150 per bond, the time commitment alone makes selling bonds profitably nearly impossible. To alleviate the time-suck, agents turn to surety brokers for help.
Why Should Agents Use a Wholesale Surety Broker?
Surety brokers provide insurance agents with in-depth knowledge of the product line and access to multiple surety markets without the hassle of appointments and the shopping scenario discussed above. Insurance agents can submit one application (hopefully online) and receive a competitive quote without the shopping hassle…time-suck problem solved? Maybe, but there are some important items to vet before choosing a broker.
- Wholesale Only – Most surety bond brokers actually prefer to operate in the retail space and compete with their agent customers for the same business. Choose a wholesale-only broker to avoid this conflict of interest. Hint, we’re the only one!
- Technology – Look for a broker with a quality online system. There are thousands of surety bonds in the U.S. with varying requirements and underwriting. Very few brokers (or carriers) have systems that can efficiently and effectively process bonds for agents.
- Customer Service – Probably should be first on this list. We’ve all heard the horror stories of working with a bad broker. Read customer reviews (particularly from agents) and ask your peers who provides the best service.
- Market Access – Surety bonds come in many varieties, from fairly vanilla license/permit bonds, to contractor performance, fidelity, and hazardous environmental risks. Ensure your broker can handle all of your surety needs.
- Commissions – Look for brokers that pay competitive commissions. For surety, commissions should range from around 10 – 20%.
How Can Agents Market Surety Bonds?
By now you know the benefits of surety bonds and how to efficiently obtain them for customers, but how can you effectively prospect for surety clients? The first step would be to publicize that you offer surety bonds. Adding surety bonds to your website product list and even promoting your offering through Google, Bing, Facebook, etc. are all simple ways to get the word out. When businesses search for a surety bond, you want to make sure that your agency information is easily accessible.
Establishing a relationship with a wholesale broker has marketing benefits as well. Many wholesale brokers get retail traffic to their website, and having a relationship with the wholesaler makes it easy for them to refer any retail traffic to you. Some even offer agent finder tools to promote your agency.
Most surety bonds are a prerequisite for business licensing requirements, which means the state the business is located in maintains records of all active business licenses. Most of these records are publicly available on the government website of the agency that regulates each business and make for great prospecting lists. If for any reason you are unable to find this information, the office of the Secretary of State for each state should be able to provide you with the information if you request it.