You can’t know where you’re going without knowing where you’ve been.
At least, we wouldn’t recommend it.
So today we’re taking a brief look at where the surety industry has “been” – namely, what it experienced in the 1990s.
Surety Bonds in the ’90s
To paint a better picture of the surety industry over the last decade, let us return to the 1990s, when it was fairly easy to obtain surety bonds. Back then, the construction industry was booming and new housing developments were sprouting all over the country.
Surety bonding companies performed little underwriting, which was understandable, considering that they had very low claim expectations. Even applicants who were under-qualified were granted surety bonds in the booming economy.
However, as the economy began to dwindle in the late ’90s and early 2000s, more claims were being processed as defaults grew.
The surety responded to paying higher claims by tightening their underwriting standards almost overnight and raising premiums.
This created a squeeze for contractors and construction companies who needed surety bonds in order to complete a construction project, especially smaller companies without the financial means to pay for the higher premiums.
How did this “squeeze” contribute to the surety industry on through the 2000s? Where are we today?