Not all producers of surety bonds fully appreciate the legal requirements of licensure that may affect them or others whom they hire. Until recently, no one could blame them, because insurance, historically, has been one of the most convoluted areas of the law– thanks in large part to the McCarran-Ferguson Act, 15 USC 1012(a), which prohibits federal intervention in the business of insurance. As a result, every state is free to come up with a different regulatory scheme.

A Revolution (of Sorts) is Modernizing How Insurance is Regulated

While it used to be common to have to employ a producer in another state to counter-sign on bonds, just as lawyers needed other attorneys to sign court papers as “local counsel,” more and more states are simplifying their lives (and probably cutting down on staff and paperwork) by granting reciprocity to non-residents who are licensed elsewhere. And with the Internet, it has become exceedingly easy to locate information, down-load forms and in some cases even submit the application on-line, although surety, being the stepchild of the insurance industry in so many eyes, still gets lumped in with dissimilar products because, well, the regulators don’t exactly know what to do with surety producers.

Due to the fact that producers sell their product to one group (the customers) but deliver them for the benefit of another group (the obligees), producers may end up needing more licensure than most insurance agents. According to Tim Mullen, Director of Market Regulation at the National Association of Insurance Commissioners (NAIC), “To do business in states other than their agencies’ states of residence, producers must obtain a non-resident producer license from each state in which they are doing business.”

NASBP and its General Counsel have called the NAIC and several state insurance commissioners’ offices and received several different answers to the question, “From which states must a surety bond producer obtain licensure?” The following is what NASBP, upon the advice of its General Counsel, believe are the most prudent recommendations for you to follow to be in compliance with the new state laws that are reforming insurance regulation.

1. An agency should be authorized by every state where it is doing business. This means filling out forms with the Secretary of State of the various states, having a registered agent for service of process, etc. This generally applies whether you are a corporation, a partnership or an LLC – but this varies from state-to-state. Tim Mullen, Director of Market Regulation at the National Association of Insurance Commissioners (NAIC), explains it this way, “Most states require surety agencies to be registered as “Business Entities,” but that is for business purposes. It is not the same as each producer holding an individual license [by the Insurance Commissioner or Department of Insurance] authorizing his/her practice in each state in which he/she does business.”

2. Each individual producer must be licensed to do business in the state in which he/she resides. It is not enough for the agency to be licensed. The producer has to have a resident license from the state where he/she resides, too. A state license gives individuals the rights and responsibilities to engage in a certain business or profession in a particular state. A state license is the legal “meal ticket” that allows individual producers to do business in a state, as long as they abide by that state’s laws and rules. This is no different than an attorney having to be licensed (admitted to the bar) in a state in which he/she is filing a brief or appearing in court.

3. In addition to the state of residency, a producer should obtain a non-resident license in each state where he or she has significant business contacts. Significant business contacts mean actively soliciting business or servicing existing customers. This is determined by where the customer’s principle place of business, i.e., home office or headquarters, is located.

4. The bond must be executed by a person who holds a license (resident or non-resident) in the state where the project is to be constructed. This does not have to be the customer’s producer; the person executing the bond may be another licensed individual, as long as that person is authorized by the customer’s surety to execute its bonds. Since there is a fee to pay and forms to be filled out for every state, it doesn’t make sense for most firms to go through the licensing process for all producers. For example, if a producer only works in Kansas and Missouri, he/she needn’t be licensed in Iowa or Nebraska, for example, even if one of his or her customers is doing a project there. Many agencies that work only occasionally in some states maintain a license for one person in those states, but then that person must then execute all bonds to be delivered to obligees in that state.

5. Each employee of an agency, who actually executes the bonds on behalf of a surety, must be authorized in a current Power of Attorney issued by that surety.  Powers of attorney issued to an agency and designated staff affirm the terms of the relationship between an agency and its personnel with a given insurance or surety company. Being an agent-in-fact for a surety company and being designated as holding that company’s power-of-attorney, however, is NOT a substitute for holding an individual license from a state and abiding by that state’s law and regulations.

In summary, NASBP recommends that producers obtain the following to cover their legal bases:

(1) A license for the producer from the state in which he/she resides (the resident license);

(2) A license for the producer, or other person executing the bond, from the state where the customer’s project is located; and

(3) A license for the producer from the state in which the customer’s business is located.

What Could Happen If You Don’t Get The Appropriate State License?

While each state is different, among other things, the Commissioner of Insurance can obtain a “cease and desist” order from a court to stop you from working further in that state, and may pursue you for penalties. It also may report your unlicensed activity to your home state Commissioner of Insurance who might take action as well. These actions could make it difficult for you to apply for a license from any state in the future.

For complete information about the uniform application for non-resident producer licensure, go to: www.licenseregistry.com. This application can be obtained from this website; however, because surety is considered under the “limited lines” category of insurance, the application form cannot be sent electronically to the states to which a producer may want to obtain a non-resident producer’s license. Click on www.naic.org/state_contacts/sid_websites.htm to obtain additional information from each state’s agency responsible for regulating insurance such as a department of insurance or insurance commission.

For information about the source of these changes, please click on the following link Where’s This “Revolution” Coming From?

Connie Lynch, Director, Government Relations, and Susan McGreevy, NASBP’s General Council, of Husch & Eppenberger LC, Kansas City, MO, collaborated on this article. Questions and requests for additional information should be directed to Connie Lynch at 202/464-1173 or clynch@nasbp.org.

I recently returned from the Regions 8, 9, 10 & 11 Annual Meeting in Newport, R.I. Newport is a great location this time of year and the meeting combined beautiful New England weather, valuable meeting content, and the traditional New England clambake. Seminars including succession planning, design-build risk management, and government relations were highlighted by Fred Barnes’ presentation on “The New Political Era in Washington.” I look forward to Mr. Barnes’ future presentations in Las Vegas and New Orleans as the presidential race heats up.

Succession planning for contractors is a major underwriting issue that we continue to address with our clients. However, do we practice what we preach? According to MarshBerry, 75% of agencies under $1,000,000 in revenue will not be able to perpetuate, and 50% of agencies over $1,000,000 in revenue will not be able to perpetuate. Lack of planning and lack of internal perpetuation candidates are cited as two primary reasons. A June 9, 2003 article in National Underwriter entitled, “Agents Not Prepared to Sell, Must Be Ready to Fight,” states that agents should either make a commitment to divert their time, attention and resources to internal staff reinvestment and perpetuation or sell their agencies while valuations are at a high point.

Over the past 6 years, we have added 120 new members to our association, yet the overall net membership has only grown by 1. While attrition has played a part in these numbers, consolidation is the primary factor. The consolidation of our industry requires that we provide leadership development and perpetuation planning to assure the future success of our members, our association and our industry.

Your Executive Committee recently agreed to move forward on an initiative with MarshBerry to provide leadership opportunities to the future leaders of our member agencies. NASBP, with assistance from MarshBerry, wants to help members prosper by improving agency performance and increasing agency value. Our focus must shift to long-term performance, which can only by accomplished by attracting, retaining and developing talented producers.

This program has four pillars:

1. Benchmarking;

2. Education;

3. Access to MarshBerry Expertise; and

4. Leadership Development and Transfer

The first phase of this program will begin with benchmarking. We will be asking each member to participate so that we can develop meaningful results for presentation at next year’s annual meeting in San Diego. This data will be used to benchmark performance measures, best practices, and overall surety specific information broken out by peer group. This will lead into educational opportunities over the next several years. A more formal presentation will be provided at the Midyear Board Meeting in Phoenix.

I hope you will look upon this new initiative and new member benefit with as much excitement and enthusiasm as NASBP’s Executive Committee. In the meantime, I hope you enjoy the remainder of your summer, and I look forward to seeing many of you at your upcoming regional meetings.

Craig E. Hansen is Senior Vice President responsible for the bond department of Holmes Murphy & Associates, Inc., in West Des Moines, IA. He can be reached at chansen@holmesmurphy.com.

NASBP and SAA Partner at NCSL
The annual meeting and exposition of the National Conference of State Legislatures (NCSL) took place on July 20-22 at the Salt Palace in Salt Lake City, UT. For the first time NASBP and The Surety Association of America (SAA) partnered on a booth.

Utah surety professionals volunteered their time, knowledge, and expertise by answering questions about the surety industry and promoting efforts to get statutory directed surety prohibitions enacted in all the states. NASBP Government Relations Director, Connie Lynch, Government Relations Coordinator, Colin Chiles, and SAA Government, Regulatory and Public Affairs Assistant, MaryLou Scutt, also were present to answer questions.

Many thanks to the following volunteers:

Steve Passey – – Old Republic Surety Co.
Bonny Peterson – – Old Republic Surety Co.
Jon Way – – CNA Surety

Visitors to NASBP’s booth received NASBP and SAA brochures and a chance to win one of three Utah Monopoly board games. The three winners of the board games were Delegate Emmett C. Burns, Jr., Maryland House of Delegates; Senator John C. Anderson, Idaho State Senate; and Senator Carlene Walker, Utah State Senate. Follow-up letters, describing surety issues and concerns for next year’s 2005 state legislative sessions, will be sent to all attendees who stopped by the booth.

NCSL is a national, bipartisan organization dedicated to serving lawmakers and staffs of the nation’s 50 states, commonwealths, and territories. It is a source for research, publications, consulting assistance, meetings and seminars, and representation before Congress, federal agencies, and the Administration.

Next year’s NCSL meeting will take place in Seattle, Washington on August 16-20, 2005.

Mark your calendars and make your hotel reservations now for the remaining regional meetings. Preliminary agendas and additional meeting registration information will soon be available on our website, http://www.nasbp.org.

REGIONS 1, 2 & 3
September 30 – October 3, 2004
Hyatt Regency Lake Las Vegas Resort
Henderson, NV

The Hyatt Regency Lake Las Vegas is located on one of the largest privately owned lakes in Nevada, only 17 miles from “The Strip.” The resort features a European-style casino with both tables and slot machines overlooking the lake and surrounding mountains. Other activities that the Hyatt Regency offers include the waterfront shopping at the MonteLago Village, Spa Moulay, and golf courses, including The Falls and Reflections Bay.

Contact the Hyatt Regency Lake Las Vegas Resort, Spa and Casino directly at (702) 567-1234 to make your room reservations before Friday, September 3 to receive the special NASBP hotel room rate of $189 single/double (plus applicable taxes). In addition, there is a $10 per person/per night Resort Fee. Be sure to mention that you are attending the NASBP Meeting. To guarantee a reservation, the hotel requires one-night’s deposit. After September 3, reservations will be accepted on a space/rate available basis only. Check-in is after 3:00 pm and check-out is by 12:00 pm. Hotel reservation cancellations must be made at least 72 hours in advance of arrival.

REGIONS 4, 5, 6 & 7
October 14-17, 2004
Royal Sonesta Hotel New Orleans
New Orleans, LA

The Royal Sonesta Hotel is located right on Bourbon Street in the heart of the French Quarter. At this grand hotel you will enjoy two worlds: the excitement of the French Quarter and the peacefulness of their private tropical courtyard. New Orleans offers history, restaurants, shopping, and much more for you to explore.

Contact the Royal Sonesta Hotel New Orleans directly at (504) 586-0300 to make your room reservations before Friday, September 17 to receive the special NASBP hotel room rate of $189 single/double (plus applicable taxes). To guarantee a reservation, the hotel requires one-night’s deposit. Be sure to mention that you are attending the NASBP Meeting. After September 17, reservations will be accepted on a space/rate available basis only. Check-in is after 3:00 pm and check-out is by 12:00 pm. Hotel reservation cancellations must be made at least 72-hours in advance of arrival. You will be charged one-night’s room and tax for any guaranteed reservation that is a “no-show.” There is a $75 early departure fee for those who depart prior to their confirmed check-out date.

Inaction Continues to Shut Down SBA’s Preferred Surety Bond Program

As previously reported in the June’04 Pipeline, Congress failed to pass a temporary extension to the Small Business Administration (SBA) and its programs when HR 4478, passed the House but was held up in the Senate in early June. In an interesting twist before Congress recessed July 22^nd for its annual August break, the Senate passed S 2700, which would have provided a temporarily extension. S 2700 was then sent to the House where an objection blocked it from even being considered for a vote.

As a result, the SBA’s Plan B or Preferred Surety Bond Program is still not operating. The earliest Congress can act to pass an extension is when the House and Senate return after Labor Day. Until an extension passes, surety companies and producers who have contractors applying under the Plan B program must reapply under the Plan A program.

NASBP welcomes the following new Members who have joined the Association since the last issue of Pipeline.

Anderson, Hall, Marsh & Company
1177 N. Warson Road, Suite 100
St. Louis, MO 63132
Key Contact: Lyle F. Gulley, Jr.
www.ahmins.com

Grayhawk Insurance and Risk Management Services, Inc.
1740 N. Collins Blvd., Suite 200
Richardson, TX 75080
Key Contact: Gary L. Johnson
www.grayhawkins.com

Experience three days in a contractor’s boots! Hold November 11-13, 2004 open on your calendars to attend this advanced level program that will enhance your understanding of the many challenges confronting contractors. Survive the “bid day war room” where small groups create their own companies and submit bids based on blueprints. Through action learning and interactive sessions, discover practical coaching techniques that make contractors more profitable.

Level III is designed for the Senior Level Executive with a minimum of 5-10 years of industry-related work experience. Join legal and construction industry experts to learn how to add value as a business consultant to your contractor clients and improve your decision-making ability for bonding opportunities.

The location for this unique professional development session is The Fairmont Hotel in the Dallas Arts District (214/720-2020) in Dallas, TX. To guarantee the special room rate, reservations must be made before October 10, 2004.

What you don’t know can hurt you. Don’t miss the only Level III program that’s offered this year!

Register Online
Download Brochure

Briefly Noted

<   POSITIONS

The Hartford Financial Services Group is seeking a Quality Assurance Consultant to support the Hartford Fidelity and Bonding department. This position can be housed in selected locations where The Hartford has a presence.

·       Responsibilities:  Responsible for the administration of the Quality Analysis Program (QAP); supports key business objectives by bringing underwriting and profitability issues to light; responsible for continuously improving the level and standards of underwriting performance to exceed regional/territory/organizational productivity goals

·        Requirements:  Qualified candidates will possess strong technical underwriting expertise specifically with Bond (Surety/Fidelity) products; be willing to challenge the “status quo” and implement change or recommend new processes as necessary; travel between 25% and 40% of the time to conduct onsite reviews and other consultative projects as needed

·         Contact:  please send inquiries and/or resume to Jodi Wallach, Staffing Specialist, email: jodi.wallach@thehartford.com EOE

INSCO DICO Group, is seeking to fill the following positions in their respective branch offices:

Glendale, CA – Sr. Underwriter

·         Responsibilities:  Underwriting and servicing complex surety bonds and developing business through marketing calls and participation in industry associations and functions

·        Requirements: Minimum of 4 years of surety underwriting experience; strong analytical, organizational and communication skills; B.A. in finance-related field is preferred

·        Contact:  Visit the company’s Website at www.inscodico.com. Go to the employment page and contact HumanResources@InscoDico.com for instructions 

Atlanta, GA – Branch Manager

·         Responsibilities:  Provide leadership in directing the branch activities; accountable for the marketing, underwriting, pricing and servicing of surety bond products within the territory served by the Branch Office and for the effective management and supervision of Branch Office personnel and expenses

·         Requirements:  Must be able to effectively lead, train, and work with others and be a good oral and written communicator; strong analytical and management skills are essential; college degree with finance or business emphasis is preferred; requires a minimum of 5-7 years of surety underwriting and business experience

·         Contact:  Visit the company’s Website at www.inscodico.com.  Go to the Employment page and contact HumanResources@InscoDico.com for instructions 

Baltimore, MD – Sr. Underwriter

·         Responsibilities:  Underwriting and servicing complex surety bonds and developing business through marketing calls and participation in industry associations and functions

·        Requirements:  Minimum of 4 years of surety underwriting experience; strong analytical, organizational and communication skills; B.A. in finance-related field is preferred

·         Contact:  Visit the company’s Website at www.inscodico.com.  Go to the Employment page and contact HumanResources@InscoDico.com for instructions

Baltimore, MD. – Underwriter Assistant

·       Responsibilities:  Provides direct administrative/clerical assistance with processing bond requests, facilitating workflow, and maintaining financial files

·        Requirements:  Must have a high school diploma and preferably 2-3 years of related general office/administrative experience in a finance-related area.  Must be detail oriented, organized and have a good working knowledge of computer operations and possess a Notary Public license, or obtain a license

·         Contact:  Visit the company’s Website at www.inscodico.com.  Go to the Employment page and contact HumanResources@InscoDico.com for instructions

RLI Commercial Surety, a division of RLI Insurance Company is seeking a Commercial Surety Underwriter for its Los Angeles, CA office.

·         Responsibilities:  Market and underwrite commercial surety in California and possibly the Pacific Northwest; some travel required

·        Requirements:  A minimum of three years commercial surety underwriting experience; 4-year college degree with a minimum 3.0 out of 4.0 GPA

·        Contact:  Irene E. Meyers, Western Region Manager at 213-787-2073; Fax: 309-689-3939; e-mail: Irene_Meyers@rlicorp.com.  Visit www.rlicorp.com for more company information

Westfield Group is seeking a Fidelity Underwriter at our corporate office located 45 minutes southwest of Cleveland.

·         Responsibilities:  Ensure production, retention and profit of fidelity business; make effective decisions regarding risk acceptability and pricing; provide outstanding agency service; maintain communications between the agencies and Westfield; apprise Regional Underwriting Manager of issues and trends requiring attention and action

·         Requirements: Bachelor’s degree; 5 years fidelity underwriting experience with a property and casualty insurance company; CPCU, CIC or appropriate insurance designation (or pursuit of); familiarity with ISO Crime 2000 Program or Surety Association Commercial Crime Policy; effective PC, communication, analytical and customer service skills; ability to travel and operate a motor vehicle (with valid driver’s license and good driving record)   

·        Contact:  Westfield Group, Attn: FSU-DS, P.O. Box 5001, One Park Circle, Westfield Center, OH 44251-5001, e-mail HRShare@westfieldgrp.com or fax: 330-887-4561. EOE. Visit www.westfieldgrp.com for more company information

On July 22^nd, House Republican negotiators presented their version of a compromise for the investment level of the TEA-21 reauthorization bill. The House proposal would provide $284 billion in guaranteed funding and total federal surface transportation program authorizations of $299 billion. The offer would provide $4.6 billion more in guaranteed funding and $15 billion more in total authorizations than the measure passed by the House in April, but the offer is still far below the investment levels Senate negotiators have said would be acceptable. The Bush Administration has said it will only support final language that provides $256 billion in funding.

No agreement was reached on any issues during the meeting, but conference leaders said they would direct their staffs to continue to work to review what would be achievable under the House and Senate funding proposals. At the end of the day, Congress recessed until
September 7.

To contact your Members of Congress to express support for the $318 billion investment level in the Senate-passed highway bill, call them toll-free by using the American Road and Transportation Builders Association (ARTBA) Action Hotline at 1-888-448-2782. Pipeline will continue to provide updates as the final language of the TEA-21 Reauthorization is crafted.

The Finance and Management Services Branch (FMS), U.S. Department of the Treasury, recently announced that the 2004 Revision of the Department’s Listing of Approved Sureties, Circular 570, is now available at: http://fms.treas.gov/c570/c570.html

The 2003 Revision of the Department of the Treasury’s Listing of Approved Sureties, Circular 570 and List of Changes, are still available for viewing at:

http://www.fms.treas.gov/c570/c570back03.html and http://www.fms.treas.gov/c570/supplements.html.

The FMS Branch also announced the following change to the Treasury List (T-List):

Deleted from the Listing of Approved Sureties
Providence Washington Insurance Company, effective 6/25/04.

Questions and comments about the T-List should be directed to: webmaster@fms.treas.gov.

To download a zipped version, click here. Contract Surety Bonds: Understanding Today’s Market is also available on CD or color overheads by contacting SIO at sio@sio.org; (202) 686-7463.

The 2004 ENR surety supplement is the perfect handout accompaniment for this presentation. Order copies of both today and impress any audience!