Fraud happens in every kind of business—and despite regulations, the surety bond industry is no exception.
Following an investigation by the Federal Bureau of Investigation and the New Hampshire Insurance Department, last week a man pleaded guilty to accepting over $633,000 from contractors who thought they were purchasing real surety bonds valued at over $23 million. In reality, the money was kept for his own personal benefit—and was not available had claims been filed.
As reported in The Eagle-Tribune, the “Newport Insurance Company”
ran illegally from 2012-2019. Operating from a home office in Pelham New Hampshire, the company sold fraudulent surety bonds for construction projects in several states.
What Is a Surety Bond?
The National Association of Surety Bond Producers (NASBP) offers this definition:
A surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).
Surety bonds are often required for construction projects. The bond essentially provides a guarantee that a contractor’s work will be completed and performed according to the agreed-upon plans. If a contractor fails to do so, the surety would be obligated to make the payments required to complete the contract, up to the value of the bond.
With over thirty years of experience in the business, Colonial Surety Company offers this helpful further description about the purpose of surety bonds and how they work:
Preventing Fraud in the Bond Industry
The National Association of Surety Bond Producers provides helpful tips for the protection of those purchasing surety bonds. For example, when buying a bond:
- Verify that your State Insurance Department has authorized the surety company to issue bonds.
- Confirm that the US Department of the Treasury has issued a “certificate of authority” to the surety company. This listing is known as “Department Circular 570” and is updated twice each year.
- Ask your surety company for confirmation that the bond you purchased has been authorized.
Finding A Trustworthy Surety Bond Company
When purchasing a surety bond, it’s also important to check on the financial strength and business capabilities of your surety bond provider. Competing in the construction industry in particular means you will need to secure bid and performance bonds quickly, easily, and reliably.
Colonial Surety Company is a great—and easy— choice. We are a property and casualty insurance company that is treasury listed, licensed in all 50 states and US territories and has been in business since 1930. We are rated “A” Excellent by AM Best Company. This financial rating reflects Colonial Surety’s strong balance sheet and longevity.
Colonial Surety Company uniquely offers small businesses a better way to purchase surety bonds. Our online, direct to consumer process is fast and efficient.
Plus, with our unique Partnership Account®, we give you our power of attorney and our corporate seal to issue your own bid bonds instantly and order performance and payment bonds—all without involving an insurance agent or broker.
The services of Colonial Surety Company are set up to ensure transparency and help small businesses gain valuable business insights. As a partner, you will receive a Company Dashboard and personal Owner’s Dashboard®, giving you a window into our underwriting analysis, your banking history, and free credit score trends.