Specialty Lines

A Surging Demand for Surety Bonds

Michael Desrochers
February 28, 2024
8 min read

Boosting Demand for Surety Bonds

In today's uncertain economic climate, businesses and individuals alike are looking for ways to protect themselves and their assets. One increasingly popular method is through Surety Bonds. These bonds provide a guarantee that a specific obligation will be fulfilled, giving peace of mind to both the obligee and the principal. In this blog post, we will explore the surging demand for surety bonds and why they are becoming a must-have for many industries.

The Market

An untapped market that carriers can explore while expanding their customer base and driving additional growth.

The U.S. insurance Surety market is experiencing a growing demand for Surety Bonds. Various factors are fueling this increasing need, particularly in industries such as construction and finance. Moreover, surety bonds offer distinct advantages over alternative financial instruments like letters of credit, making them a preferred choice for businesses looking to enhance their borrowing capacity.

In the recent AM Best’s Market Segment Report Surety has been one of the most profitable lines for U.S. property/casualty insurers, generating $2.3 billion in net underwriting profit, on just $8.6 billion in 2022 direct written premium. This represents 15.7% growth compared to 2021, according to data from The Surety & Fidelity Association of America.

Many insurance carriers are looking at surety as a positive “growth” product in their overall portfolio. It can provide a distinct competitive advantage as underwriting profits in other insurance product lines of the business are down. By offering Surety Bonds as part of their portfolio, carriers can set themselves apart from competitors and attract clients looking for more comprehensive risk management solutions.

Surety Bonds

Surety bonds play a crucial role in providing financial protection and security for both businesses and individuals.

Before we dive into the demand for Surety Bonds, it's important to understand what they are. Surety bonds are financial agreements (contracts) between three parties: the principal, the obligee, and the surety. The “principal” (contractor or business) is the party who needs to fulfill an obligation, the “oblige” (project owner, government entity) is the party who is protected by the bond, and the “surety“ (bond provider, insurance carrier) is the party that provides the guarantee that the obligation will be fulfilled. If the principal fails to fulfill their obligation, the obligee can make a claim against the bond to recover any losses incurred, which the surety will step in and cover the associated costs.

In the world of Surety, two of the most commonly utilized forms are contract surety and commercial surety.

Contract Surety

Bonds found primarily within the construction industry. They serve the paramount purpose of guaranteeing the contractor's qualifications to execute the required work promptly, while also committing to honor their financial obligations towards subcontractors, suppliers, and laborers who play an essential role in the successful completion of the project.

Commercial Surety

Encompasses a wide array of surety bonds aimed at securing the principal's performance in fulfilling the obligation or undertaking specified in the bond. It is imposed on both individuals and businesses as dictated by the federal, state, and local governments.

Demand & Popularity

Increasing complexity of business transactions and the need for financial protection.

One of the main reasons for the surging demand for surety bonds is the increasing number of industries that require them. In the past, these bonds were primarily used in the construction industry, but now they are becoming a requirement for a wide range of businesses. From auto dealerships to mortgage brokers, many industries are now required to have bond insurance to operate legally. This is due to the added protection it provides for consumers and the assurance that obligations will be fulfilled.

Another factor fueling the increased need for surety bonds is the impact it has on a company's borrowing capacity. In contrast to a letter of credit, surety bonds do not count against a company’s overall borrowing capacity, allowing the ability to free up capital and credit for more productive uses.  Also, of note is that their pricing remains stable, regardless of interest rate fluctuations. This provides  a cost advantage (unlike letters of credit, where their cost rises as the Federal Reserve raises rates).

Furthermore, obtaining Surety Bonds has also become easier and more accessible, contributing to the surge in demand. With the rise of online bond providers, businesses and individuals can now easily obtain bonds without having to go through a lengthy and complicated process. This has made it easier for businesses to comply with bond requirements and has also made it more convenient for consumers to verify the validity of a bond.

The Role of Technology in Surety Bonds

Surety market is experiencing a significant shift towards digitization.

To meet the increasing demand efficiently, insurance carriers are adopting advanced technologies to streamline the bond process. The traditional approach to underwriting surety bonds involved extensive paperwork and manual processes, leading to delays and inefficiencies.

Innovative technologies, such as automated underwriting systems and digital platforms, have revolutionized this process. These tech-driven solutions enable carriers to evaluate risks, generate quotes, and issue bonds more swiftly, enhancing their competitive advantage in a rapidly evolving market.

Another such technology-driven transformation is the adoption of e-bonding, which offers a range of benefits for insurance organizations, such as:

Streamlined Processes

E-bonding can significantly streamline bond issuance processes, reducing paperwork and administrative burdens for insurance professionals. One example is Smart contracts which enables the automatic execution of contractual obligations, which ensures compliance and reduces overhead costs.

Efficiency Gains

Automation and digital workflows can lead to greater efficiency in underwriting and issuing of surety bonds, enabling faster turnaround times and improved customer experiences.

Enhanced Accessibility

Provides convenient access via portals and mobile applications to simplify bond issuance services for clients. This promotes greater transparency and accountability, and ease of transactions.

Furthermore, artificial intelligence (AI) and machine learning (ML) are transforming underwriting processes. By analyzing vast amounts of data, AI and ML algorithms can assess risks more accurately and make data-driven decisions. This not only speeds up the underwriting process but also improves risk assessment accuracy, allowing surety carriers to offer more competitive terms and conditions.


The future of the US surety market appears promising.

It's clear that surety bonds have become an essential tool for businesses and individuals looking to protect themselves and their assets. With their ability to provide financial security and mitigate risks, surety bonds are poised to play an even more significant role in shaping the future of business transactions and contractual agreements.

As infrastructure development and commercial construction projects continue to fuel demand for surety bonds, insurance carriers have ample opportunities for expansion and profitability.

Carriers who decide to operate in the surety market have an opportunity to capitalize on this growth by offering innovative products and services tailored to meet the evolving needs of businesses. By staying attuned to market trends and embracing innovative technology, carriers can position themselves for success in this thriving sector.

PCMS Atlas is an end-to-end enterprise suite solution designed for small to mid-size insurance carriers to better streamline their overall operations and maximize their potential. Check out Atlas for Surety - gain a competitive edge and better serve your clients.

Michael Desrochers
February 28, 2024
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