How Viking Bond Service Defines Surety Bonds in 2018

Are you wondering how surety bond companies like Viking Bond Service keep current in a marketplace that changes as quickly? To know how Viking Bond Service defines surety bonds in 2018, it helps to understand what a surety bond is, what the most common types of surety bonds are, and how the definition has changed in recent times.

What Is a Surety Bond?

A surety bond is a sort of protection, often for the general public, and sometimes for specific parties to the bond. It is usually required by local, state, or federal government agencies for particular jobs or contracts. Although surety bonds are often lumped together with insurance and are sometimes even guaranteed by insurance companies, they are distinct three-party agreements.

 

The principal is the primary business or person who will be licensed, perform a contractual obligation, or otherwise fulfill duties in line with what the obligee expects. The obligee, often a government agency, is the recipient of the promise or obligation to perform. The third party is the surety, who provides the financial guarantee, backing up the promise of the principal.

 

If the principal fails to make good on their obligation, the obligee can make a claim on the bond. If that claim is valid, the surety will pay it according to the terms of the bond. The principal is ultimately responsible for repaying any amount the surety pays out on a claim.

Most Common Types of Surety Bonds

There are four main kinds of surety bonds. Contract surety bonds and commercial surety bonds are the most common and are the most likely to be required. A contract surety bond ensures that contractors and people they employ fulfill the obligations of construction contracts. A commercial surety bond promises that licensed businesses will operate in compliance with all required codes. Usually, commercial bonds are mandatory for professionals who the law requires to operate with a specific license.

 

Fidelity surety bonds guard customers and businesses against theft and are less common. Companies whose employees handle many assets or lots of cash are typically strong candidates for fidelity surety bonds.

 

Court surety bonds protect against litigation costs and, like fidelity bonds, are less common. Plaintiffs with fiduciary duties or in court cases with the potential to become very costly might be required to carry court surety bonds.

Surety Bonds and a Swiftly Changing Market

Surety bonds were around before even the modern calendar, and for thousands of years, they didn’t change too much. Modern surety bonds were born in the 19th century, after William L. Haskins proposed The New York Guarantee Company in 1837. This became the first surety company in the US.

 

However, since 2000, numerous changes in the market have changed the way businesses and individuals work with surety bonds. Surety bonds have exploded into new markets and industries and are even more important than they used to be. Here are some examples of ways the industry has changed in recent years:

 

 

  • In 2007, the home construction industry tanked as unprecedented growth gave way to a bubble that eventually burst. The market was a mess, and many businesses were unable to finish projects—not to mention the customers that couldn’t always pay for them. Even as recently as 2014, the pace of new construction was still well below historic norms. This crisis solidified the importance of the surety industry, and construction bonds remain indispensable.

 

  • Since a lawsuit was settled in 2015, the three major American credit reporting companies, Equifax, Experian, and TransUnion, have started to phase out civil judgments and tax liens from credit reports. This means that six to seven percent of Americans may improve their scores, and thus their surety bond rates. Especially if you’ve had a bond for a long time and will be renewing it, it’s a good idea to check your credit and ask your surety bond provider about this.

 

  • In February 2018, California became the first state in the nation to issue a surety bond program specifically for the cannabis industry. Today, California issues six (6) different cannabis licenses, each requiring a $5,000 surety bond. This trend is likely to spread to other states across the US.

Surety Bonds in the Future

There will always be new kinds of surety bonds and trends in the marketplace. In the near future, we may see surety bonds covering the conduct and performance of robot workers and autonomous vehicles, or energy efficiency/climate resilience surety bonds for construction projects.

 

The only way to be sure you’re getting the very best advice on surety bonds is to work with a company that makes it their business to stay abreast of all of these developments—a company like Viking Bond Service. Contact us for all of your surety bond questions and needs, and benefit from decades of experience and expert advice.