What is Surety?

Surety is a niche and fascinating corner of the insurance industry - and it’s quite ancient.  The first recorded surety bond dates back to 2750 BCE in Mesopotamia, and today, 4,700 years later, it continues to be a vital part of commercial and consumer protection.

Although packaged and sold through insurance companies, one could argue that Surety is not insurance at all. Today, when mentioned, it’s often in regards to the construction industry. Walking around our modern and developed world, it’s easy to take for granted just how risky (from a financial perspective) the construction can be.

Consider that at any time contractors have multiple projects on the go. Meeting payroll, funding suppliers and tracking down receivables are just a few things, that if not taken care of properly, can become extremely problematic. With enormous amounts of money coming in and out, these project owners (or obligee’s as we call them) can become rightly concerned about their contractors (or principals) ability to complete work while avoiding bankruptcy before the completion. This financial concern is the driving force behind the growth of the surety industry.

When a contractor approaches an insurer for bonding, the underwriting involved is (and must be) rigorous. As an alternative form of credit, surety is only secured by way of an indemnity agreement. Accordingly, the surety wants to be certain of the capacity, character, and financial strength of the contractor they are supporting. It is important to note that insurers expect to incur losses, but sureties do not.

               Beyond the construction industry, surety bonds are all around us as an instrument for consumer protection. From guaranteeing the payment of tax obligations, to ensuring that professional licensing standards are upheld, Surety is used to add security to the marketplace.

               At Alteri we have the big picture understanding of surety. Beyond explaining the bond as a 3 party instrument, we know how this crucial financial instrument fits within your business. Suffice to say, some 4,700 years later, surety is here to stay. Speak with our Surety agent today, Kurt Morley, and he will be happy to assist you!