I have had many clients come to me recently asking about Surety Bonds and what the requirements would be to obtain a bond. My purpose here is to briefly address the what's, why's, and how's of bonding. Because insurance companies are the primary issuers of surety bonds in the United States, there is a common misperception that bonds and insurance policies are one in the same. That is certainly not the case. Most sureties are large insurance companies primarily because they have the capital necessary to make large commitments in the form of surety bonds. Surety is much more like obtaining credit than purchasing insurance. Unlike insurers, surety companies do not expect to suffer any losses, and if they did they would demand reimbursement from the principal.
What is a Surety Bond?
It is a promise to pay one party (the obligee) a certain amount if the second party (the principal) fails to meet an obligation. Usually set forth in a contract. The surety bond protects the obligee should the principal fail to meet their agreed commitments. As a practical matter, a bond is also an instrument of prequalification, representing that the principal has been examined by the surety and found to be qualified to complete their obligations. There are many types of surety bonds, following are a few examples:
Owner/Contractor- Generally used to guarantee proper performance/completion of contracted job. Might include: Bid Bonds, Payment Bonds, Performance Bonds, Maintenance Bonds, Subdivision Bonds, etc.
Government Entity/Company or Individual- Generally used as a guarantee that they will comply with certain underlying statutes, state laws, ordinances, or regulations. Might include: License Bonds, Customs Bonds, Tax Bonds, Broker's Bonds, ERISA Bonds, Motor Vehicle Dealer Bonds, Health Spa Bonds, etc.
Public Official Bonds- Sometimes required for Notaries, Treasurers, Commissioners, Judges, Law Enforcement Officials.
Misc. Bonds- Often support private relationships and unique business needs.
As you can see, there are a wide variety of bonds available that can be used in almost any type of business to assure completion of a project, compliance, fidelity, and other responsibilities between multiple parties.
Why are Bonds required?
Normally to assure one party of anothers ability to pay, perform, or comply with the conditions of a contract.
How do I obtain a Bond?
Depending on the purpose of the bond, it may be as simple as providing test results or other proof of compliance with licensing procedures or it could be a much more detailed and information intensive underwriting process. In the case of contractors, some requirements to obtaining a bond might include: Financial Statements, Bank Letters, Work Schedules, Tax Returns, Questionnaires, References, Business Continuity Plans, Resumes, Credit History, and Personal Indemnification. This can be an intense underwriting process that the surety will use in determining that your company is well-managed, profitable, deals fairly, and fulfills promises and obligations.
I hope this short explanation will provide some insight into Surety Bonds for those who might need to obtain or require bonds for other people. The decision to take on bonded projects might require a change in how your company does business and manages cash flow. The Buckner Company writes more construction bonds than any other agency in our region and we look forward to helping you with all your bonding questions and needs.
Monday, August 30, 2010
Thursday, August 26, 2010
Workers Compensation Insurance
Why do we have to purchase Workers Compensation Insurance? Well, before Workers Compensation Laws were established, the only way for an employee to collect compensation was to pursue their employer in a lawsuit. In which, they would have to prove negligence on the part of the employer which could be a difficult task. So, for employees who were truly injured in the workplace, they could go months or even years with no compensation and limited ability to work which can be a huge problem for society as a whole. Workers Compensation laws were enacted to limit the employees ability to pursue a lawsuit against their employer which also provides the employer a better way of managing and estimating their costs for employee injuries.
Worker’s Compensation Laws are enacted on a state by state basis so it is a good idea to look into what the laws are when considering expanding your work operations into other states. Some states require you to buy insurance from their state fund, others permit your to buy it in the open market, and there are others that don’t require you to purchase it at all. (Texas)
Workers Compensation is a very structured system giving certain values to different types of sustained injuries and disabilities. Each employee is grouped into a classification based on their type of work which assigns an insurance rate to their amount of payroll. Also, individual companies are given credits/debits based on their claims history as it compares to other companies in their same industry. But what can be done to contain my costs??
There are several things that can be done to ensure you are only paying for legitimate injuries from the time the injury occurs until they injured employee can return to a productive task. Consider the following:
• The best thing you can do is show the insurance company that you are committed to managing and preventing claims as best you can.
• Have a safety program in place and a return to work program
• Respond quickly to claims and work with the insurance company and clinics to reduce the costs.
• Maintain a clean and organized work environment
• Train Supervisors on employee safety and regularly check to make sure safety devices/restraints are used properly
• Implement a reward program for employees who follow safety rules and help others to be safe
• Do your own investigation and documentation of the claim as soon as it happens
• Implement a drug testing program to avoid unnecessary injury and Liability while employees are at work
• Attend safety meetings and ask for recommendations from your insurance company. They want to and are very willing to help you keep your costs down
• Identify the risks involved with your line of work and make sure the employees are aware of those risks and are trained properly
Worker’s Compensation Laws are enacted on a state by state basis so it is a good idea to look into what the laws are when considering expanding your work operations into other states. Some states require you to buy insurance from their state fund, others permit your to buy it in the open market, and there are others that don’t require you to purchase it at all. (Texas)
Workers Compensation is a very structured system giving certain values to different types of sustained injuries and disabilities. Each employee is grouped into a classification based on their type of work which assigns an insurance rate to their amount of payroll. Also, individual companies are given credits/debits based on their claims history as it compares to other companies in their same industry. But what can be done to contain my costs??
There are several things that can be done to ensure you are only paying for legitimate injuries from the time the injury occurs until they injured employee can return to a productive task. Consider the following:
• The best thing you can do is show the insurance company that you are committed to managing and preventing claims as best you can.
• Have a safety program in place and a return to work program
• Respond quickly to claims and work with the insurance company and clinics to reduce the costs.
• Maintain a clean and organized work environment
• Train Supervisors on employee safety and regularly check to make sure safety devices/restraints are used properly
• Implement a reward program for employees who follow safety rules and help others to be safe
• Do your own investigation and documentation of the claim as soon as it happens
• Implement a drug testing program to avoid unnecessary injury and Liability while employees are at work
• Attend safety meetings and ask for recommendations from your insurance company. They want to and are very willing to help you keep your costs down
• Identify the risks involved with your line of work and make sure the employees are aware of those risks and are trained properly
Thursday, August 19, 2010
Lawyers.. Always looking for a Loophole
Found this kindof funny! Want to insure those cigars? Think again...
A Charlotte lawyer purchased a box of costly cigars and insured them against flood, storm damage and, of all things, fire. Needless to say, his investment went up in (happily inhaled) smoke within a month, after which the lawyer filed a claim with his homeowners insurance company that he was owed compensation because "the cigars were lost in a series of small fires". The insurer refused to pay, assuming (correctly) that the man had smoked the pack himself. A judge ruled, however, that since the insurer had never stated what was considered to be "unacceptable" fire the company did, in fact, owe him $15,000 to replace his property.
The insurance company paid the claim, but they got their own back in the end. The lawyer was then arrested, sentenced to 24 months in jail and a $24,000 fine for 24 counts of arson and insurance fraud. (as told at www.swapmeetdave.com)
Ain't life grand?
A Charlotte lawyer purchased a box of costly cigars and insured them against flood, storm damage and, of all things, fire. Needless to say, his investment went up in (happily inhaled) smoke within a month, after which the lawyer filed a claim with his homeowners insurance company that he was owed compensation because "the cigars were lost in a series of small fires". The insurer refused to pay, assuming (correctly) that the man had smoked the pack himself. A judge ruled, however, that since the insurer had never stated what was considered to be "unacceptable" fire the company did, in fact, owe him $15,000 to replace his property.
The insurance company paid the claim, but they got their own back in the end. The lawyer was then arrested, sentenced to 24 months in jail and a $24,000 fine for 24 counts of arson and insurance fraud. (as told at www.swapmeetdave.com)
Ain't life grand?
Tuesday, August 17, 2010
Insurance To English Translations
Here are a few common terms used in insurance that have us saying "What the heck does that mean!?" I will occasionally post new terms. If you have one that you are wondering about, let me know and I will give it my best.
1> Actual Cash Value: This means that your damaged or destroyed property will be replaced at it's current value: Cost new - Depreciation. If you want your property valued at what you paid for it, then you should consider purchasing insurance at Replacement Cost.
2> Coinsurance: In Property insurance, a coinsurance clause requires the policyholder to insure their property to a percentage of it's actual value. If the percentage to value is not met then there can be a penalty paid by the insured at the time of a loss.
3> Deductible: The amount that the insured must pay before insurance will pay anything.
4> Reinsurance: Insurance that an Insurance Company buys to protect itself from paying out catastrophic claims. Who are the Reinsurers of your Insurance Company? That is considered when assigning a financial rating to an insurer. If your Insurance Company does not use solid Reinsurers then you run the risk of their inability to pay out on a large claim.
5> Umbrella Policy: Provides coverage for losses that go beyond the limit of underlying insurance policies such as your Liability and Auto Limits. The Umbrella policy sometimes provides broader coverage and may cover something that is excluded from your primary limits. In this case, a Self Insured Retention would apply which is similar to a deductible.
1> Actual Cash Value: This means that your damaged or destroyed property will be replaced at it's current value: Cost new - Depreciation. If you want your property valued at what you paid for it, then you should consider purchasing insurance at Replacement Cost.
2> Coinsurance: In Property insurance, a coinsurance clause requires the policyholder to insure their property to a percentage of it's actual value. If the percentage to value is not met then there can be a penalty paid by the insured at the time of a loss.
3> Deductible: The amount that the insured must pay before insurance will pay anything.
4> Reinsurance: Insurance that an Insurance Company buys to protect itself from paying out catastrophic claims. Who are the Reinsurers of your Insurance Company? That is considered when assigning a financial rating to an insurer. If your Insurance Company does not use solid Reinsurers then you run the risk of their inability to pay out on a large claim.
5> Umbrella Policy: Provides coverage for losses that go beyond the limit of underlying insurance policies such as your Liability and Auto Limits. The Umbrella policy sometimes provides broader coverage and may cover something that is excluded from your primary limits. In this case, a Self Insured Retention would apply which is similar to a deductible.
WELCOME
Welcome to my insurance blog. I hope you will find this to be a useful resource in finding answers to your everyday questions about your insurance policy (I realize that you spend most of your time thinking about insurance) like me. Just in case you don't, I hope you will let me do some thinking for you so that when you are forced to consider what your insurance policy actually protects you for, you might find some answers here.
Please feel free to make comments, ask questions, share a story, invite your friends, etc. I only ask that you do not regard my content as being specific to YOUR individual or business policy. Every insurance policy is different so I will try to write in generalities rather than specifics. Specific questions about YOUR policy should be directed to your Insurance Agent (hopefully me). My sole purpose in creating this blog is to inform and update on current insurance news and issues while trying to make a normally dry/boring subject somewhat interesting and entertaining. It is also a way for me to communicate a large range of information for you to consider at your convenience. Please check back regularly!
Please feel free to make comments, ask questions, share a story, invite your friends, etc. I only ask that you do not regard my content as being specific to YOUR individual or business policy. Every insurance policy is different so I will try to write in generalities rather than specifics. Specific questions about YOUR policy should be directed to your Insurance Agent (hopefully me). My sole purpose in creating this blog is to inform and update on current insurance news and issues while trying to make a normally dry/boring subject somewhat interesting and entertaining. It is also a way for me to communicate a large range of information for you to consider at your convenience. Please check back regularly!
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