Surety bond market getting a significant enhance from inflation, greater infrastructure spend

The surety bond market is about to obtain a big enhance from inflation and the sharp inflow in infrastructure initiatives, pushed by the federal government’s $1.2 trillion infrastructure spending invoice.

That’s in line with Aaron Steffey (pictured), CEO and co-founder of Propeller Bonds, an insurtech managing basic agent (MGA) specializing in surety bonds.

“A contract surety bond that was a $500,000 job three years ago is now a million-dollar job with inflation. Surety benefits from that because inflation is driving up the total bond value,” Steffey stated.

“The second thing that’s changing the surety market is the infrastructure bill that passed at the tail-end of COVID. The $1.2 trillion infrastructure spend is largely going to be on bonded projects.”

‘Lots of carriers’ eyeing surety bonds

President Joe Biden unveiled a historic $1.2 trillion infrastructure bundle in 2021. The bundle consists of roughly $550 billion in new investments for bridges, airports, waterways, and public transit throughout the US.

“The infrastructure spending combined with inflation has propelled the surety market. Those two factors, combined with the industry’s better reception to digitization, has made surety an awesome place to be,” Steffey instructed Insurance Business.

“I feel there’s a whole lot of carriers seeking to get into surety now at a time when underwriting income are hurting in different traces of enterprise.

“Surety is a safety valve for carriers because it’s very profitable. But when underwriting profits are flush, surety is a little more on the backburner. We’ve noticed a lot of interest from reinsurers and carriers looking to get into surety in general.”

“Our loss ratio is less than 2%. But also, within surety we have a great spread of risk, where it’s coming from every different geography, every different type of agency, every different type of bond customer,” the CEO stated.

“On any given day, we may sell an auctioneer bond in Minnesota, a contractor license bond in Florida, and then an oil and gas bond in Oklahoma.”

How did the COVID-19 pandemic influence the surety market?

Propeller, a Philadelphia-based insurtech, gives automated, end-to-end underwriting via its platform, aiming to unravel widespread ache factors within the surety bond issuance course of.

The white-labelled agent platform helps almost all business and constancy merchandise, together with license and allow bonds and ERISA bonds.

When the corporate launched in June 2020, on the onset of the pandemic, the surety market was ripe for disruption. For a very long time, conventional gamers available in the market had been gradual to undertake new expertise and digitize their platforms.

“We were seeing how much technology was going into other lines of business, and not into surety,” Steffey stated of Propeller’s inception. “The biggest sentiment seemed to be about keeping the train on the tracks. ‘Why reinvent the wheel? Why innovate?’”

Steffey, previously an impartial agent, and co-founder Chris Kolger, noticed a spot in innovation in surety as tech start-ups raced to cater to cyber insurance coverage and ship work-from-home options to insurance coverage corporations.

“Surety is highly profitable, but highly unchanged by technology over the last several decades,” Steffey stated. “It created a good opportunity for us.”

Propeller’s timing turned out to be extraordinarily fortuitous. COVID-19 tremendously accelerated the surety market’s digitization and compelled gamers to be extra receptive to automation – which the agency was prepared to supply.

“In the last three years, we’ve gone from zero to 3,000 agencies signed up, and we’re transacting thousands of bonds every month,” stated Steffey.

What’s subsequent for the surety bond market?

Amid its broader digitization, the surety bond market has grow to be able to adapt to among the mainstream developments in insurance coverage, together with embedded insurance coverage.

Recognizing this, Propeller not too long ago launched embedded surety bonds that may be bought alongside a basic legal responsibility coverage.

“We’re starting to work with other MGAs targeting small businesses to bolt on a surety solution for their customers and serve as passive revenue stream,” stated Steffey.

Propeller can be targeted on upgrading its expertise to make life simpler for brokers and provider companions, together with including extra API integrations, and on rising its company power.

“One area we’re seeing a lot of growth in is our product for large commercial. Working with publicly traded mortgage brokers, we handle the bonds for some large insurance brokers on that. We’re handling the bonds for oil and gas accounts, private equity deals, and some specialty accounts,” the CEO stated.

“We started out streamlining transactional surety. We’ve now moved upstream into providing a much more holistic solution for agents and brokers.”

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