An insurance broker bond is a type of commercial guarantee bond required in most states. Utilized by insurance agents, it is also a license and permit bond which guarantees that the licensed individual will perform his or her duties as outlined and regulated by state laws.
Why Do Insurance Brokers Need This Bond?
The insurance broker bond is required to assure insurance companies that a broker will accurately account for and remit all premiums collected by the broker on behalf of the company. It also protects the public and individuals who purchase insurance products from harm resulting in the actions of the broker, either purposefully or errantly.
Insurance broker bonds are in the class of permit bonds along with other types of brokers, such as mortgage brokers and transportation brokers.
Obtaining Insurance Broker Bonds
Compared to other types of surety bonds, insurance broker bonds are considered a standard to low risk for bonding companies. Rates are relatively cheap and consistent from one bonding company to another. For this reason, many insurance brokers who are required to obtain bonding do so with a company that offers the best customer service.
Requirements for obtaining an insurance broker bond are usually minimal, and they usually require a simple credit check with a minimal amount of additional information. Nonetheless, there are some insurance brokers who do not qualify for the standard or low risk bond due to issues on credit reports. For these individuals, there are still programs and higher risk insurance bonds that can be purchased for an additional cost.
In some cases, additional information is required for underwriting the broker. Supplementary information that may be used to determine the approval and price of the broker bond include:
• Bond Application – This includes general information about the principal or broker, such as name and place of business.
• Financial Statements – In some cases, financial statements, such as balance sheets or income statements are required. A bonding company must know that the applicant runs a fiscally stable business, and the broker may be asked to prove a clear financial picture of the business.
• Personal Financial Statements – The bonding company may require personal financial statements from the applicant as well. They want to know if the individual has a strong net worth and has possession of acceptable liquid assets.
• Owner’s Resume – The resume will tell the underwriting bonding company how long the applicant has been in business, as well as the length and type of expertise held. Confidence in the broker’s ability to perform his or her duties is the key when approving a surety bond.
• Credit Report – Personal credit reports of the applicant, as well as the spouse in some cases, are usually required. An underwriter carefully reviews and analyzes all aspects of a report, including bankruptcy, collections, judgments, and any liens.
Insurance broker bonds are typically required by most state governments who oversee the insurance agency or brokerage industry. With the easy, low-risk bonding process, it is relatively simple for a person in good financial standing to obtain a broker bond in their state of business.
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