Rate Rules Eased On Surety Bonds

WASHINGTON–Insurers will be given greater flexibility on rates they can charge for surety bonds under new regulations just approved by the Small Business Administration.

Under the new rules, which take effect July 25, sureties are allowed to charge current state rates under the SBA's Surety Bond Guarantee Program rather than being locked into rates that were set 20 years ago as required under the former regulations. The new rules were published in the Federal Register.

Beneficiaries of the new rule are small and emerging contractors needing access to surety bonds so they can bid on public construction projects, according to officials at the American Insurance Association and the Surety and Fidelity Association of America.

Under the new program, insurers can adjust rates to reflect up-to-date loss ratios and expenses, said Lenore Marema, a staff official at the SFAA.

“The Surety Bond Guarantee Program needs to be a 'Go To' market for small and emerging contractors without a surety bond history to gain access to the bond market,” AIA and SFAA officials said.

Without an effective SBA program, officials of the two groups said, “there could be a proliferation of individual state and federal agency bond programs that vary greatly in funding and procedures.”

“A myriad of different programs would be an enormous administrative burden for surety companies and their producers and likely would not generate widespread participation,” officials of the two groups added.