Future of Surety: Why the Industry Needs Knowledge Transfer and Education Now
Surety requires a highly complex and specialized form of underwriting. It is also an excellent career path for those who thrive on complex challenges, have a genuine interest in buildings and infrastructure, and enjoy playing a role in getting things done. Given how important and profitable the business line is, it’s unfortunate that it’s not better understood within the insurance industry, and that more people are not lining up to work in this growing line of business. The time has come to change this.
Publicly funded construction, energy and other infrastructure projects must be bonded to protect taxpayers’ interests, making surety an important and lucrative business line for insurers. Largely driven by the construction market, surety has fared notably well during the pandemic, and stands well-poised to continue experiencing strong market growth due to new infrastructure initiatives. However, stronger surety awareness is needed both at the carrier and producer levels.
The lack of understanding about surety seems to begin during the early stages of insurance industry education. Major universities with risk management curriculums spend all of two days on the topic of surety; hardly enough time for future underwriters and risk managers to fully grasp the basics, let alone the nuance and value that make surety unique.
There’s also a need for education on these topics within today’s changing workforce, both on the carrier side and among independent agents and brokers. General agents who came up in the property/casualty ranks often know a little about surety, but not enough to offer up significant expertise to their clients. They should make sure that the surety specialist they bring to a client meeting has the necessary experience to understand their client’s business and offer surety solutions that can help them succeed.
With 41 years in this business under my belt, I have a vested interest in the future of surety and hope to encourage a new generation to join the ranks. Here is what it takes to be successful in this business line.
1. A fondness for digging into the details of complex and nuanced investigative challenges.
There are no checkboxes or rules when it comes to underwriting surety — just guidelines and controls that a surety specialist must fully grasp to be successful in the role. Sureties tend to underwrite the business acumen of the client, so a general assessment of a client includes determining whether they have an understanding of risk, strong financial controls, a process for tracking costs, CPA-prepared financial statements, etc.
Every surety underwriter has a large scope of independent assessment that’s their responsibility, and judgement calls based on character are made on a regular basis. This is always a balancing act, but this need for human intervention is also one of the most exciting things about the business.
2. A genuine interest in the construction industry and some understanding of regional infrastructure.
Regional expertise of territory is essential in surety. Every state/town has different statutes and regulations, and surety specialists need to understand this as part of the underwriting process. Regional differences may include the timing of the economy and demographic trends. For example, a state like Florida has a lot of open land it can develop and a growing population, which means many new construction opportunities, new highways, etc. In contrast, the Northeast states are as a whole more built up, making renovation and maintenance projects more commonplace. Awareness of these regional differences — as well as a general appreciation for the world of building and construction — can be an important factor in determining which projects a carrier will underwrite.
3. A talent for relationship building and a desire to play a pivotal role in creating results.
Surety underwriters generally spend a great deal of time speaking with potential clients to ensure they are of strong character (trustworthy, ethical, etc.) and have a deep understanding of the risk. If a contractor displays integrity and has a strong business plan that makes sense, this gives a fair amount of confidence to the underwriter when it comes to committing surety support. The same should apply for clients and agents when it comes to choosing a surety provider. They should trust their underwriters and understand what they are trying to accomplish, how they are doing it, and what’s important in making the decisions. Generally speaking, anyone who would enjoy the satisfaction of making personal connections with builders and helping to ensure their projects happen would do well to explore opportunities in this unique field.
Importance of Knowledge Transfer
Because of the complex nature of the business, surety underwriters are an experienced group with most boasting 20-plus years of experience. However, while experience is important, an aging workforce presents a challenge when you look 10 to 20 years down the road. If we only hire for experience now, surety will face a potential talent gap in the years to come. In fact, this is already happening in the industry.
The solution to this potential dilemma lies in mentoring — partnering experienced practitioners with young people for knowledge transfer and training. Within my own organization, we have intern and training programs designed to identify, develop and attract diverse talent. New hires with a financial analysis skill set, a basic understanding of accounting, and a foundational understanding of the insurance industry receive direct training from subject matter experts in the energy, construction, and engineering segments. This kind of forward-thinking career development will help to ensure a future talent pool for this important and profitable segment of the market.