Secrets of Bonding #132: Inside the Underwriters Skull

We’re going on a journey.  We will crawl inside the surety bond underwriter’s skull and see what’s in there: Maybe not much.

To succeed in acquiring bonds, it is helpful to understand the process and motivation of the decision makers.  Here we go.

Agency vs. Bonding Company

When new clients call us to get their bond account resolved, we always ask “Do you currently have a bonding company?”  The answer is often something like “Yes! The Acme Insurance Agency.”

So the first thing to understand is the difference between the agent (or agency) and the bonding company (aka the surety, the carrier, the company). Typically, the agent (and agency) is your local retail salesperson.  Their job is to find new prospective clients, develop their info, analyze and submit it to the underwriters for review, and provide ongoing customer service. They normally are paid by commission and do not hold any of the risk on the bonds.

The Surety (bonding company, the carrier) holds the risk.  They collect the bond premium.  Their employee, the underwriter, is the decision maker who determines if the bond will be approved, and on what terms. 

Now that we have identified who the decision-maker is, let’s talk about process and motivation.

The Process – Underwriting Authorityskull

In order to assure a consistent and controlled decision-making process, bonding companies issue Letters of Authority to each underwriter.  These instructions cover two areas. 

  • #1 prohibited transactions. Don’t do any of this stuff.  It may include types of bonds and different scenarios that are unsupported by reinsurance, or are incompatible with the company’s risk appetite.
  • #2 transaction size. This covers the dollar value of transactions.  It may say “You can issue the following type of bond, up to this maximum amount $_______.”


Underwriters are paid a salary and in many cases, a production bonus.  The bonus is based on the volume of profitable business they produce.  They are expected to operate faithfully within the company’s underwriting guidelines.  Annual production goals are set with a reward if they are exceeded.

If you have a feel for it now, let’s put on our underwriter hats and look at some situations.  As an underwriter, will you move these to the top of the stack?

Situation 1: This new applicant does not normally need performance bonds.  In fact, after three years in business this is their first one.  You are told “this shouldn’t be a problem” because the contract / bond amount is only $15,000.

Situation 2: Maintenance Bond request on a completed contract.  A “no brainer?”   The performance bond was issued by another surety, but the client says they don’t want to use them for the Maintenance Bond because of their slow service.

Situation 3: The government is offering a computer services contract.  The vendor must provide a performance bond.  The contract has two optional one-year extensions at the sole discretion of the government.  The surety must file notice of cancellation 30 days prior to anniversary in order to get off the risk.  Failure to bond the extension (with a new surety) can result in a claim against the expiring bond.

Love any of these?  We don’t either.  Why are they undesirable to the underwriter?

Remember the basics:  Underwriters are looking for profitable transactions they can process efficiently.  Case #1 is simply not rewarding enough.  Too hard to set up a new file just to write one very small bond, and maybe that’s the last one for the next three years.

#2, looks like there is a complicated underwriting situation.  Could be a performance bond claim, or bad financial info that is causing the incumbent surety to back away.  People don’t change bonding companies just for fun.

#3, underwriters cannot proceed if their exposure is undefined. Since the potential bond term is undefined (and beyond the underwriter’s control), it would be impossible to comply with the underwriting authority.


Underwriters do not embrace all transactions equally.  So how do get your bonds approved?

  1. Start with a conversation. This can give you an idea of how to proceed efficiently: “Here’s what I got.  Can you help me?”
  2. Good file accessibility: Make the info easy to process.  Does the underwriter want pdfs emailed for review?  Then don’t send a paper file or one big jpg (a picture file).
  3. Proper forms: Does the underwriter require their own application?  Use it!  Answer ALL the questions.
  4. Be Cooperative: “Are you sure you don’t have that already? We sent it on Monday.” That always amazed me. If the underwriter requests info, don’t ask them to justify that they need it.  Provide it – and more than once if necessary.

Remember, even if the process is difficult, underwriters must approve business to remain viable.  Make your bond easy to process and easy to approve. Make it the file they want to work on next.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision and Contract Surety 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.

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