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The Surety Dilemma: Finding Certainty in Uncertain Times

As construction projects grow in size and complexity, contractors need reliable and financially strong surety underwriters more than ever. Here’s what to look for.
By: | September 14, 2018 • 4 min read

It’s a transformative time in the property and casualty insurance world: Mergers, acquisitions and a ‘new normal’ in frequency of CAT losses are driving changes in insurer appetites, operating models, and portfolio composition. The construction industry is shifting too: Projects continue to grow in size, complexity and duration.

As a result, just when simplicity, stability and predictability are ever more vital to contractors, circumstances well beyond their control may make long-term certainty in surety relationships, well, uncertain.

“A trusted, reliable surety gives a contractor the means to plan, execute on opportunities, and fulfill obligations with confidence. It’s a lynchpin to growth,” said Mike McKibben, vice president, Surety, Berkshire Hathaway Specialty Insurance.

With a constant undercurrent of change as P&C insurers divest businesses or reboot operations to achieve scale and more acceptable risk profiles, what’s a contractor to do to ensure that its all-important surety relationship is stable now and for the future?

First, realize that surety is a two-way street.

“Just as surety underwriters assess customers’ financial, operational, and executional risks and capabilities, the contractor should perform its own due diligence and be sure the relationship aligns with its needs, expectations, and long-term aspirations. After all, surety is a partnership – and that’s what finding the right partner is all about,” McKibben said.

Following are some questions and attributes to consider when assessing your next moves in the surety marketplace:

1. Does your surety have the capacity and commitment for both immediate and long-term needs?

Mike McKibben, Vice President, Surety, Berkshire Hathaway Specialty Insurance.

Optimally, the surety relationship you forge today will serve you well as your business changes, grows and evolves in the years ahead.

That means thinking big when considering the capacity a potential surety can provide long term — and examining the big picture of where the surety underwriter’s parent company is going as well. Is their focus on customers and long-term relationships?

2. What is the surety’s overall business approach?

With construction projects becoming increasingly complex, the simpler your surety’s business the better.

“Get a sense of how agile they are in responding to your needs. Unique and unusual requests are increasingly common in the surety space,” McKibben said.

For some underwriters, an out-of-the-box circumstance can spur creative discussions. For another, it might necessitate re-underwriting.

3. Who’s doing the underwriting and decision-making?

Relationships come down to people. The individuals building the surety relationship with you should have the experience, knowledge and authority to act on your behalf. At a time when underwriters move around the market, do a gut check: Do your underwriters seem engaged and committed to stay?

4. What about claims?

Assuming claims are handled in-house, the overall business approach of your surety can be a good indicator of what’s to come. The same professionalism, communication, timeliness and transparency you see in underwriting should follow through to claims.

Ask about the claims philosophy.

5. Is it time to consider a co-surety?

“If you have a satisfying surety relationship now, but want to ensure greater capacity is available as you grow or want to hedge against an uncertain marketplace, consider introducing a co-surety,” McKibben said.

Work with your broker to weigh the benefits and assess candidates that complement and expand on your current relationship.

6. Does your surety have the financial strength to be there for you long term?

Some factors used to evaluate an underwriter are subjective. Financial strength is black and white. Measure one potential surety underwriter’s treasury limits and credit rating against another’s.

Against the changing backdrop of today’s P&C industry, making the right surety match is more important than ever. Now is a good time for contractors and brokers to evaluate their current surety relationships and share and set expectations for the future … a future built on a certain and stable surety partner.

To learn more about BHSI’s surety products and services, visit https://bhspecialty.com/us-products/us-surety/.

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.
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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, medical stop loss and homeowners insurance.

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]