Month: December 2015

Secrets Of Bonding #115: The Most Important Question in Bonding

When Surety Bonds are needed, there is always a questionnaire to fill out.  Why?  Because the underwriters need some basic info, and quickly.  The app asks for company location, ownership, plus facts about the operation and its history. 

So many questions!  Are they all relevant?  Are they all needed?  Actually… they are not equally important.  In fact there is one question on the app which is undoubtedly 

THE MOST IMPORTANT QUESTION OF ALL

green_shade

 

Let’s test your underwriting skills!  Here are some typical bond app questions.  Are they hot ones, or just background music?  Which question is the most important for bond underwriters?

  1. Q. Date Business Formed This is very important because many surety reinsurance treaties require that all the bond clients have certain longevity – such as minimum 3 years in business.  If the applicant has less than 3 years, some underwriters will stop reading at this point and decline.
  2. Q.Has the company, any affiliate or subsidiary, or any owners / spouse or companies in which they have had an ownership interest or managerial role ever experienced a bankruptcy?  Here is another important question, a deal killer with many underwriters.  They may not want to hear about the circumstances of the BK or subsequent positive developments.  Their reinsurance may forbid supporting such applicants.
  3. Q. Formal Buy-Sell Agreement in place? This question concerns continuity.  In the absence of key people, how will the company survive?  How will the bonded jobs get completed if the boss gets run over?
  4. Q. Is full corporate and personal indemnity by all owners, spouses, and affiliates provided? This is important b/c full indemnity is normally required and some applicants are reluctant to provide it.

Got your answer?  Read on.

 

Conclusion

**All the questions are relevant.  That’s why they are on the questionnaire.**

Let that sink in…

They are ALL important.  So for the underwriter, the question that jumps up off the page is the one left unanswered.

Why do people fill out the app and skip one question?  It has to be either carelessness “Sorry, I skipped over it by mistake,” or intentional “If I answer that question honestly, I may not get the bond approval!”  Both reasons are bad.

We can assume that “N/A” is an option for an irrelevant question, or “Unknown” if you have no info.  But a blank is a problem b/c cause the reader doesn’t know how to take it.

Many facts are double checked during the surety underwriting process.  But for a large portion of the info, the market is simply trusting the applicant to be truthful and transparent.  They depend on having full disclosure, and are entitled to it as the guarantor.

So please, please, please don’t skip any questions.  The app is often the underwriter’s first opportunity to meet the client.  Put your best foot forward by answering completely, and attach additional comments if an explanation is in order.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.