Have you ever had a small business owner or contractor client approach you about a surety bond? At the time, did you know: What a surety bond is? What the different types of bonds are? How surety bonds work? Surety bonds are different from standard insurance liability coverages, so if the answer was "No" to any of these questions, you may have opted to refer the bond request to another party with more surety experience and missed out on valuable commission.

Philadelphia Insurance Companies (PHLY) is well-known for our insurance portfolio, but did you know that we're also one of the highest-rated and financially strongest surety bond companies in the country? While you may not be a surety expert, rest assured that PHLY has a team of experts who are ready and able to assist you with all your surety needs. That means you can stop referring surety business away and place it directly with PHLY to keep those hard-earned commissions for yourself. Here's a brief overview of surety and how you can put our bonds to work for your clients.

What Is a Surety Bond?

Essentially, the term surety means "responsibility." One party takes responsibility for another's performance, guaranteeing their work. Surety has been practiced since at least 2750 B.C., with the first evidence of a surety agreement etched onto a Mesopotamian tablet.

A surety bond is a written agreement between three parties as described below:

• Principal - the party required by the Obligee to obtain the bond. The Principal is responsible for complying/performing with the underlying contract, statute, code, or ordinance, giving rise to the bond requirement.
• Obligee - the party who stipulates coverage terms and requires a bond from the Principal to guarantee the Principal's compliance/performance.
• Surety - typically a subsidiary or division of an insurance company that guarantees the Principal will perform/comply as stipulated in the contract/statute/code and pays if the Principal doesn't perform as promised. If the Principal fails to perform as required and the Surety pays a loss on the Principal's behalf, the Surety will expect the Principal to indemnify (repay) it.

Indemnity and the number of parties involved separate surety bonds from insurance policies. An insurance policy is an agreement between two parties: the insurance company and the insured policyholder. As referenced above, surety involves three parties (the Principal, the Obligee, and the Surety company). The parties are bound by an agreement that guarantees the Principal's compliance and/or performance and indemnifies the Obligee, protecting them from loss.

How Does a Surety Bond Work?

When a Principal seeks to enter into business or an agreement/contractual obligation with an Obligee, the Obligee may first require the Principal to obtain a bond. The Principal must then seek out a surety company to issue bonds on their behalf. Before doing so, the Surety will review the Principal's qualifications via an underwriting process. If the Surety deems the Principal qualified, they will typically require the Principal to sign an indemnity agreement before bonds are issued. The indemnity agreement acts as a financial guarantee wherein the Principal pledges to reimburse the Surety for losses incurred due to the Principal's failure.

Prior to bond issuance, the Principal pays the Surety a premium for the bond much like an insurance policy. If the Principal doesn't perform or comply as stipulated by the agreement, the Obligee may make a claim against the Principal's bond due to the Principal's failure. If the Surety pays a claim, the Principal is then responsible for reimbursing (indemnifying) the Surety for losses paid on its behalf.

What Types of Surety Bonds Are There?

There are many types of surety bonds that fall into two primary classifications:

Commercial bonds are required of individuals or businesses to operate a business or fulfill other statutory/contractual obligations. Commercial bond requirements are commonly defined by statutes, ordinances, or local codes and protect Obligees or consumers against fraud, financial loss, and unethical business practices.

PHLY offers multiple commercial bonds, including:

• License and Permit Bonds
• Customs Bonds
• Court/Fiduciary Bonds, including Probate
• ERISA Bonds
• Employee Dishonesty/Business Services Bonds
• Notary Bonds and Notary E&O Coverage
• Miscellaneous Bonds

Contract bonds are often required by construction clients such as builders, highway contractors, trade contractors, material suppliers, and developers. These bonds guarantee that contractors will perform according to contract provisions, finish on time, and pay subcontractors, suppliers, and laborers. They protect the Obligee against loss if the contractor fails to fulfill the contract terms.

PHLY's Contract bond offerings include the following:

• Bid Bonds provide financial assurance that a bid was submitted in good faith
• Performance Bonds protect the Obligee from projects not completed on time or according to specifications
• Payment Bonds guarantee that the contractor will pay project costs
• Supply Bonds guarantee that the contractor will supply and deliver goods and materials by a certain date
• Subdivision Bonds guarantee that a builder or developer will complete improvements to a subdivided property
  
  

Where Can I Get a Surety Bond?

PHLY Surety offers bonds in all major categories and can accommodate your clients' commercial or contract bond needs whether they're a small business or a Fortune 100 company.