In the last year the surety bond industry has had some major increases in bond amount requirements. The major increases this year happened on three bonds; two in California, namely the car wash and Immigration consultant bond and the ICC Transportation Freight Broker bond for the BMC-84 license which is federally required. Here is a breakdown of what those increases look like:
Why the major increase?
The quick answer is to provide more protection to the public. The bond amounts required were not providing a realistic financial protection of the public and taxpayers. Bonding risk typically doesn’t change often but can happen when flurries of claims come in on one specific type of bond. This means the surety companies are paying claims out more often on these types of license’s due to unfair business practices of others with this license type.
What does this mean for small business owners?
As bond amounts are increasing you can expect to be paying more for surety bonding. Premiums will go up and underwriting guidelines will be stricter due to the higher bond limits. Unfortunately this means that some smaller businesses may be closing their doors. The impact of higher bonding limits is far reaching for small business owners and is going to increase the cost of doing business in those fields.
What can we expect in the future?
The troubling thing about bonding requirements changing is that ‘we don’t know until we know’. The bonding company doesn’t provide public statistics for the number of claims on each bond type so the increases are hard to predict.
What can I do personally?
Business owners can make an extra effort to ensure that they are fairly compensating their employees and customers and abiding by the guidelines of their respective business licenses. If there are any disputes over compensation or unfair business practices they should try to be handled personally and promptly instead of letting it go as far as a claim being placed on their bond. This should help to slow the rate of claims being made and thus hopefully slow the rate of bonding requirements increasing.