Half of sureties see market conditions for contract surety softening later in 2013, but only one in five surety brokers agree that it will happen, according to surveys of both types of companies by the National Association of Surety Bond Producers.
The difference in perspective was evident in more ways than one at the NASBP’s annual convention at the Fairmont hotel in San Francisco April 21 to 24. One explanation, a member of the Surety and Fidelity Association of America noted, may be that the bond producers have not yet noticed an influx of capital into the surety market that the underwriters have seen.
There were other differences. Mark McCallum, NASBP’s chief executive, said the association’s survey of 33 individual producers or brokerages reported rising claims while the 33 or so sureties didn’t detect an upswing.
The surety business is a building with two wings, one for underwriters and the other for broker/producers. Although the close working relationship between the two is needed for the industry to function, each sees the world from a different perspective.
One of the most interesting differences between sureties and bond producers is a small one concerning the quality of claims handling. Judged on a scale of one to 10, McCallum told several hundred producers during the convention’s general session, sureties rated the industry’s claims handling at 6.4, while bond producers rated it exactly one point lower, 5.4.
Among the more critical comments about claims made in the survey, said McCallum, was that the “industry has a ways to go” on claims handling. A bond producer said about claims, “I feel completely isolated.”
Whether the contractor and bond producer will work together constructively on a claim sometimes hinges on whether a contractor that has defaulted will survive to work another day or whether the company is at the end of the line.
Timothy Mikolajewski, president of Liberty Mutual Surety, said the sureties' role in a claim may be to “clean up and do the work and move on." Sometimes the level of optimism is too high. Then, the situation may be one where a claims company "should be involved and pay the bills and close out and move on.”
In contrast, said Mikolajewski, there are claims involving contractors where there “is a good opportunity for that company to survive." In that case, said Mikolajewski, the surety and bond producer may need the "best talent" and other resources.
In either situation, a new attitude may also be needed toward claims paid when contractors default, suggested M. Ross Fisher, vice president and general manager of The Hartford Construction Group.
“In the past,” said Fisher, “I didn’t want [a competitor] to know I had a loss. It was a shame.” Now, however, completing work for failed contractors should be a source of pride “because it saves the taxpayer enormous amounts of time and money.”
“When The Harford has a loss, we have to be happy about saying, ‘we’re going to fix it.’ I’m not sure,” said Fisher, “that we shouldn’t put a sign up” says that the Hartford provided the funds to finish the project.