The world of bonding and insurance is intertwined for a few reasons. One of them being that in Canada, the licensing required for an insurance broker and a surety bond broker are actually the same.
That being said, the skill set and knowledge needed for being a surety bond broker and an insurance broker are actually quite different.
There’s also numerous other reasons why although it may seem convenient and beneficial to get your insurance and bonding at the same place, it can actually be detrimental to ensuring you’re obtaining optimal rates, limits, and expertise for your bonding experience.
Whether you are a construction contractor needing a bond facility for tender and final bonds, or a customs broker looking to arrange import bonds for your customers – a surety focused broker can ensure you have an optimal bonding experience.
Licensing & Marketing Similarities
The Canadian Accredited Insurance Brokers License (CAIB) has 3 levels and 4 exams that are required to complete and obtain a full license to run a brokerage and operate as an insurance broker in Canada.
Surety bond brokers require the same CAIB license. Out of the 4 exams needed for CAIB completion, only 1 chapter of the 3rd CAIB curriculum involves surety bonds at all – the rest are all purely insurance focused.
If you’d like to learn more about the difference between bonding & insurance, see our post titled: Why Surety Bonds are not Insurance.
Understandably so, it’s not attainable to gain an understanding of bonding from a single chapter in 1 textbook. Therefore, the only way to truly gain insight and experience into the bonding industry is to have experience operating in it.
It should be noted that in other countries and regions, surety and insurance actually have completely separate licensing, education, and even underwriting markets.
Chat with a Canadian bonding focused consultant
This brings us to our next point which is that the large insurance companies (not brokers) are the ones that offer bonding because they have multi-millions of dollars to put up as third-party guarantees on bonded contracts and agreements.
That being said, there are also surety-only underwriters that insurance brokers may not have access to as it is not their focus in terms of lines of business.
Next, we’ll discuss that although licensing and underwriters may share some commonalities, the expertise, experience, knowledge, and skill sets for bonds and insurance are very different.
Different Skill Set & Surety Expertise
While insurance is a product that offers protection for those that purchase it, bonding actually does not provide direct protection for the principal making the surety bond purchase. We often encourage our clients to think of their bonding / bond facility more like a line of credit than a form of coverage.
Surety Bonds are “third-party guarantees” and although this concept may seem abstract when you first hear about it, it means that another party is willing to financially protect an owner (called the Obligee on bonds) from the potential of a principal being “in default” on an agreement.
As the principal looking to secure bonding, your main concern should be obtaining optimal bonding capacity and customer experience at the lowest rates available. There is no ‘form of coverage’ to be concerned about as the principal.
If you are the party receiving the bond as a 3rd party guarantee (the Obligee), then an appropriate bond wording is something that you should ensure you’re getting. There are 100s of different types of bonds and wordings in the Canadian market.
If you’d like a consultation service on which type of bond is right for your situation, we can assist with that as well. We do this for construction bonds, development bonds, and more.
Profit Sharing for Insurance Industry Insiders
Unlike surety bond brokers who focus solely on bonding, insurance brokers often have revenue structures tied to contingent commissions and profit sharing agreements with insurance carriers. These agreements create a potential conflict of interest, as brokers may be incentivized to place bonding business with certain underwriters, regardless of whether it benefits the client in order to receive a ‘kick-back’.
A surety-focused brokerage, on the other hand, works exclusively within the bond market and prioritizes securing the best rates and terms for clients. They are not motivated by profit-sharing agreements on the insurance side of the business.
You may get pressure from an insurance broker to place your bonding with the same underwriter as your insurance policies. This may work in some cases, but it’s best to have a bonding exclusive broker to negotiate terms, limits, rates, and give general advice to you.
While placing bonding at the same market as your insurance may seem convenient, it often results in less competitive rates or suboptimal terms. Surety bond brokers, however, work with a wide range of underwriters, allowing them to shop around and secure the best deal.
Brokers With Separate Insurance & Bonding Departments
Even within large brokerages that have both separate insurance and bonding departments, the focus often remains on insurance. Bonding can become a secondary consideration, lacking the specialized attention and expertise required. A surety bond broker ensures that your bonding needs are always the priority, without being overshadowed by insurance-related business.
Large insurance brokerages can often have minimum premiums on bonds that far exceed what they would typically be due to the overhead of how many hands that placement goes through. Account executive, administrative assistant, bookkeeping, managers, and more. At Bond Connect, we have your bonding specialist manage things from start to finish to ensure you’re getting the best rates available.
How We Can Assist as Your Surety Focused Bonding Brokerage
At Bond Connect, we exclusively focus on surety bonds. We understand the intricacies of the bond market and work with the best underwriters in Canada to ensure that our clients receive the optimal rates and bonding capacity for their needs.
Whether you require contract bonds, commercial bonds, or any other type of surety bond, our team of experts is here to guide you through the process.
Contact us today to discuss your bonding requirements and experience the difference that a dedicated surety brokerage can make.
Frequently Asked Questions
Q: Why can’t my insurance broker handle my bonding needs?
A: While some insurance brokers may offer bonding, they often lack the specialized knowledge and access to a wide range of specialized underwriters. A surety bond broker focuses exclusively on bonding, ensuring you get the best rates and terms along with the expertise it takes for things to go smoothly.
Q: Are there advantages to using a surety bond broker even if my insurance broker offers bonds?
A: Absolutely. A dedicated surety bond broker has specialized knowledge, relationships with top underwriters, and the expertise to optimize your bonding capacity and the time it takes to place bonds.
Q: Does working with a surety bond broker cost more?
A: No! In fact, a surety-focused broker can often secure better rates and terms than an insurance broker, as they have specialized market knowledge and established relationships that are dedicated to the bonding industry only. No conflicts of interest.
Q: How can Bond Connect help with my bonding needs?
A: At Bond Connect, we focus exclusively on surety bonds and work with the top underwriters in Canada. We tailor bonding solutions to your specific requirements, ensuring the best possible outcome.
Concluding Bonding Brokers vs. Insurance Brokers
To wrap things up – it is our humble opinion that leveraging a surety only broker is in your best interest if you require bonds regularly or even have a one-time need for a bond.
The very niche expertise that it takes to place surety bonds effectively and in an efficient matter should be handled by somebody that exclusively focuses on this and doesn’t do insurance as well.
If you have questions about your bonding needs or would like to chat to see how we can improve your experience, don’t hesitate to book a consult with us below. We provide bonds across all industries in Canada and also for international businesses needing Canadian bonds. If your business is domiciled in Canada and you need international bonding, we can likely assist with this as well.
Look forward to touching base!
