By Tugrul Topaloglu of Tinubu Square

Despite the rise of insurtech in the past 20 years, the relatively niche specialty lines (that is, bonds and guarantees) remain relatively unimproved by digitalization compared to their property and casualty insurance peers.

Bond producers are well aware of this. But to digitize their workflows to be more efficient, they need the cooperation of the surety companies, project owners, and other parties involved in a bond transaction. Digitalization of the bond and guarantee business could be the single biggest boost to producers’ operations.

Pandemic adjustments and relief spending

The pandemic caused a surge in digitalization for other industries and acted as a catalyst for renewed focus on the need for transitioning to electronic bonding for the surety industry. Because of the surety industry’s dogged effort, several state and federal agencies acted by temporarily allowing bonds to be submitted electronically.

But there is still much work to be done, and NASBP and SFAA are exploring a long-term strategy to advance the acceptance of electronic surety bonds and continuing to partner with contractor friends to enlist industrywide support and guidance on this critical matter.

Meanwhile, a change in executive branch leadership in the U.S. government has led to political parlor games about how much spending might be authorized by Congress to rebuild and expand infrastructure and stimulate the economy with public works spending.

Construction Executive magazine, for instance, reported on January 19, 2021, that the proposed COVID relief plan would include: $440 billion for states and local communities as well as $170 billion for schools, with $130 billion towards reopening and additional funds for colleges’ shift to distance learning, and other responses to the pandemic.

Two-thirds of bond business in the U.S. is linked to large commercial and contract bonds, the grand majority of which are for construction. It’s sobering to think of heading into the next economic cycle or massive federal infrastructure stimulus when the parties in the equation are still using 1970s-era technology.

Modernizing multi-party workflow requires cooperation

Multiple parties can help bring about change, most notably producers and underwriters. But they need a way to envision and implement technology and other solutions to bring more surety transactions out of the 1970s and into the future.

Paper-based workflows—requiring hand delivery of documents with raised seals and wet signatures—mean higher business costs and reduced efficiency. Still, most of the carriers that have implemented digital processes so far indicate their main reason is not cost-based, but related to compliance and auditability. Transforming any high-frequency workflows into secure digital and partially automated systems means those underwriters and their network of producers can grow business at a higher scale.

And while bond producers and surety companies don’t literally build a project, they play a vital part in creating a secure and trusted environment for contractors, property owners, and other companies to do so. A bond is not just a requirement on a construction firm’s checklist; it’s an essential risk management mechanism that allows the firm to put the first shovel in the ground.

The imperative

Transformative solutions for the bond and guarantee ecosystems must be available now, but they also have to be able to last. The ease of doing business must have a future as well as a present. To face the daunting economic and construction challenges as the pandemic rages on, the surety industry must digitize its operations as much as humanly possible.

Tugrul Topaloglu is SVP of Americas at Tinubu Square, provider of online software platforms enabling trade credit and bonding transformation. He can be reached at ttn@tinubu.com or 646.400.0148.