David Byrne, Sr.
Starkweather & Shepley Insurance Brokerage Inc.
Construction and COVID-19 Surety Considerations For the past 13 years the surety industry has produced profitable results. During this time frame the industry has experienced the entrance of a number of new surety companies creating an abundance of capacity and a liberalization of underwriting standards. Be prepared as changes are coming and surety credit will be more difficult to obtain for many contractors. Early surety results in 2020 already reveal an uptick in losses and this is before the impact of the COVID-19 disruption that did not commence until the end of the first quarter. Please be certain to consider the following when surety is being sought: 1. Is your company currently operating at a profit? If not, why not? Corporate sureties are not risk takers but rather “pre-qualifiers” who underwrite on the premise of never having a loss. A detailed explanation of current results is critical to obtain surety support. 2. Is your company’s bank line in place and is there available credit if needed? Bank lines are typically demand obligations that can be closed at the bank’s discretion. This pandemic has created schedule, labor and supply chain interruptions that can have a negative impact on cash flow. The need to remain liquid and have additional or emergency funding in place is critically important to a surety. 3. Are your bonding requests typical in nature to the type of work usually sought, the size of the contract desired and geographically consistent with your normal place of operations? These are key underwriting considerations. OCTOBER, 2020
Surety support will be difficult to obtain if the company is pushing their single project size or aggregate limit. Further, if a project is different in construction design or physical location, underwriters will be very reluctant to approve atypical requests. 4. The COVID-19 virus has new concerns as underwriters attempt to deal with both the unprecedented and unknown. Contract terms specifically directed to the responsibilities of both parties to the contract should be clearly outlined should a project be stopped by a governmental agency or un-
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“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”
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