Secret #93: Let’s call the whole thing off! (All about Agents)

 Independent Agent, Captive Agent, to-may-toe, to-mah-toe: Let’s call the whole thing off! *

  •  What’s the difference between independent and captive agents?
  • How does an insurance company differ from an insurance agency?
  • Why does it matter?

In this article we will sort out the differences and explain why it is important to know.

The bonding company is like the manufacturer of the product. The bonding agent is the manufacturer’s rep, the sales person who performs the retail side of the transaction.

When it comes to bid and performance bonds, most contractors obtain their bonds from bonding agencies. However, some may be dealing directly with bonding companies and not appreciate the difference. Actually, there are important implications.

The “Big I” is the symbol of the national organization: Independent Insurance Agents and Brokers of America Inc. You can also find their information under the “Trusted Choice” logo. This is a national organization with 140,000 member insurance agents. They serve the retail function as intermediary between the insurance company and the retail customer (contractors and others).

The alternative arrangement is to do business directly with the insurance company.


In this scenario, the customer is dealing with a captive agent directly employed by one insurance company and whose products are all that the agent may offer. They are chained to the one company.

The difference is significant and important for customers to understand. The Trusted Choice (Independent Agents) tagline is Free To Do What’s Right For You. That’s the whole point: An independent agent is free to offer the products of many insurance/ bonding companies, and find the one that’s best for you in the process. To put it simply, captive agents must fit you into one of their company’s products or risk not making a sale.

When it comes to surety bonds, the same holds true. The independent bond agent has access to a number of sureties (insurance companies) and can find the best one for the customer. The companies may even compete for the business resulting in better terms for the client.

The captive agent must offer the products and programs of their employer, even if the client is a square peg in a round hole.

Let’s stop for a moment and review what we have learned:

  • There are insurance companies and insurance agencies
  • The insurance company is the provider of the product and they hold the risk
  • The insurance agent, also known as the bond producer, is an intermediary and the channel between the customer and the insurance or bonding company
  • Insurance/bonding agents come in two flavors: independent and captive
  • Independent agents represent a number of companies and can shop the entire market to find the most beneficial solution for the customer
  • Captive agents work for one insurance or bonding company and only offer their products

At this point, it may all seem pretty clear. You understand the differences and may have decided which you like better: independent agent or captive. Now, the only point of confusion is to recognize which one you’re dealing with.  Independent agents are likely to point out that they represent a broad range of markets (insurance companies) but a captive agent may not mention they only have access to one company.

Do you have a to-may-toe or a to-mah-toe? Do you have an independent or captive agent?


“What markets do you represent?” If the answer is a single company, you are talking to a captive agent who does not provide access to a variety of markets that may compete for your business.  If they rattle off a list, “We have Company A, Company B, Company C, etc…” that’s an independent agent.

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.

*  “Let’s Call the Whole Thing Off” is a song written by George Gershwin and Ira Gershwin for the 1937 film Shall We Dance where it was introduced by Fred Astaire and Ginger Rogers as part of a celebrated dance duet on roller skates.  The song is most famous for its verses comparing different regional dialects.  Watch it!



Secret #92: City Discovered a Better Way To Bond?

We ran into a situation this week where a public body “the city” took an unusual approach to bonding a project.  Maybe they invented a great new way to bond / protect public work!

No Bid Bond!
The project specification indicated that proposers did not need to provide a bid Bond.

No Performance Bond!
There was also no performance bond required to accompany the contract.

No Payment Bond!
No payment bond to protect suppliers of labor and material! (How could we be so stupid all this time?)

Maintenance Bond – Required
Bidders must provide evidence that a maintenance bond can be supplied. It is for a fixed amount, approximately 10% of the estimated contract amount.

To address the risk that the contractor may perform the work incorrectly, the city is using a pre-qualification process to evaluate each proposer.magnifying-glass

Our readers may recognize that this approach is not normal. Maybe the city has invented a new way to adequately protect the interests of the tax payers, or it may just be a bad idea.

Pluses and Minuses
On the plus side, since the cost of the bond is included in the contract amount, the city may have saved about $3,000 for the tax payers. That’s the approximate difference between the cost of a traditional 100% performance and payment bond as opposed to this maintenance bond issued for a lower dollar value.

However, this fails to take into consideration the time and expense associated with the pre-qualification process. Who devised the evaluation criteria? Who performs the actual review? Presumably there is an evaluation of prior experience, human and physical resources, financial condition including other contractual obligations, credit status, and the plan for performance of the work. How long does the evaluation of the bidders take and how much does it cost? Is it more than $3,000?

Regardless of how expertly the pre-qualification is performed, projects can still have problems and defaults. In fact, disputes are normal in construction.  When they boil over, it can be detrimental to the project owner (the city) costing more time and money.

In the absence of a performance bond, what solution is available to the taxpayers if a contractor does fail in the midst of the project? The city would be forced to conduct an evaluation regarding the remaining portion of the work, then re-advertise the project and spend additional time and money to bring in a completion contractor.  (Contractors expect to make exceptional profits when performing a rescue.)

Another potential issue arises from the responsibility to pay suppliers of labor and material.


  • The contractor defaults, declaring bankruptcy (they’re gone)
  • The lumber supplier and construction workers are unpaid
  • Such parties are not in privity of contract with the public body (no direct right of action against the city)
  • The public body may have sovereign immunity protecting it from claim or suit.

If a default occurs and there is no payment bond, claimants may have no means of recourse.

The city plans to rely on the maintenance bond, but what happens under the default scenario?  If the contract is not successfully completed and accepted, there will be no maintenance bond!

If they do get the 10% maintenance bond issued, who pays if they set the bond amount too low?  What if there is a 15% problem, not too hard to imagine. Again, the taxpayers lose.

In light of the significant downside risk associated with this strategy, it is hard to imagine how the city concluded it was prudent. The approach taken by most public bodies is to require a 100% performance and payment bond. Everyone hopes the project will go smoothly with related bills paid on time. The reality is that most jobs do, but not all.

Bear in mind, on a typical bonded project, the underwriters exercise a high level of scrutiny over who they support.  Bonding companies are risk averse. This means highly trained professionals evaluate each contractor’s capabilities and only provide the bonding support when they have passed all the tests. Underwriters do this for a living. For them, it’s not a sideline.

Our conclusion is that this alternative strategy places an unnecessary risk on the tax payers. Let’s face it, bonds are an economical way to screen the contractors, assure successful performance and guarantee bills are paid.  The 100% P&P bond requirement is normally statutory because it is the most efficient way to protect the public interest.

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.