As a business owner, you may be required to obtain a surety bond to protect your clients or customers. While surety bonds are an important part of doing business, they can also be a source of confusion and frustration, particularly when it comes to filing a claim. In this blog post, we will explain the steps in the surety bond claims process and what businesses need to know about filing a claim.
Filing a surety bond claim can be a complicated process for businesses. It’s important for both the obligee (the party that requires the bond) and the principal (the party that obtains the bond) to know the steps in a claims process to ensure that the claim is processed efficiently and effectively.
The first step in the surety bond claims process is to notify the surety company of the claim. The obligee must provide a written notice of claim to the surety company. This must include all necessary documentation to support the claim. It is important to note that claims must be made within the time limit specified in the bond.
Once the surety company receives the notice of claim, they will initiate an investigation to determine the validity of the claim. The investigation may involve a review of the bond, the contract, and any other relevant documentation. The surety company may also contact the principal and obligee to gather additional information.
After completing the investigation, the surety company will evaluate the claim to determine whether it is covered under the terms of the bond. This is required only if the Surety Bond is conditional. However, if the claim is covered, the surety company will determine the amount of the claim and any potential damages.
If the surety company determines that the claim is covered under the bond, they will make payment to the obligee. The payment may be made directly to the obligee. Otherwise, Surety may be used to hire a contractor to complete the work or remedy the situation.
If the surety company pays a claim, they may pursue subrogation against the principal to recover any damages. This means that the surety company will seek reimbursement from the principal for any payments made under the bond.
Once the claim has been paid, the surety company will work with the principal to resolve the underlying issue. This may involve completing the work or correcting the problem to prevent future claims.
After the claim has been resolved, the surety company will close the claim and maintain all relevant documentation for future reference.
It’s important to note that claim settlement for surety bonds is different from claim settlement for bank guarantees. Bank guarantees are issued by banks to guarantee payment or performance of an obligation. If a claim is made on a bank guarantee, the bank will typically pay the claim without any questions. They will then seek reimbursement from the party that obtained the guarantee through the collateral. In contrast, surety bond claims are paid directly by the surety company. Additionaly, the surety company may seek subrogation against the principal for any damages paid.
When a surety bond claim is filed, the surety company may employ a surveyor or loss assessor as a third-party administrator to evaluate the claim. The surveyor or loss assessor will conduct an independent investigation to determine the validity of the claim. The Surveyor will provide a detailed report to the surety company. The report may include recommendations on how to resolve the issue or prevent future claims from occurring. The surveyor or loss assessor serves as a neutral third party, ensuring that the investigation is unbiased and thorough. Their role is crucial in providing an objective assessment of the situation. Such assessment can aid in the timely resolution of the claim. Furthermore, the surveyor or loss assessor may also provide expert advice on industry-specific matters or technical issues related to the claim.
It’s important to note that the claims process for conditional and unconditional surety bonds may be different.
Conditional surety bonds are issued with specific conditions or requirements that must be met before the bond becomes effective. If the conditions are not met, the bond will not become effective, and no claims can be made against it. In the event that a claim is made on a conditional surety bond, the surety company will investigate whether the conditions of the bond were met before making a decision on whether to pay the claim.
Unconditional surety bonds, on the other hand, are issued without any conditions or requirements. If a claim is made on an unconditional surety bond and the surety company determines that the claim is covered under the bond, they will make payment to the obligee.
Technology has played a significant role in making the claims settlement process more efficient and effective for both surety companies and their clients. At Surety Seven, we offer a completely digital platform for surety bonds, which streamlines the claims settlement process.
Our online platform allows clients to easily manage their surety bond portfolio and file claims online. This eliminates the need for paper-based processes and allows for faster and more accurate processing of claims.
In addition, our platform provides real-time access to important information about your surety bond portfolio, including bond status, limits, and claims history. This transparency helps businesses to better manage their risk and ensure that they are properly protected.
Surety Bond claims and claim ratios can vary widely depending on the type of bond, the industry, and the specific country or region. However, here are some general global statistics and information on the current state of surety bonds in India:
Bank guarantees are a more established form of financial security in India, with a longer history and more data available.
Filing a surety bond claim can be a complicated process for businesses. Understanding the steps in the claims process can help to ensure that claims are processed efficiently and effectively. Therefore, it’s important for both the obligee and the principal to understand the claims process and to work closely with the surety company throughout the process.
At Surety Seven, we are committed to providing our clients with the support and resources they need to manage their surety bond portfolio and file claims with confidence. Therefore, With our digital offering and commitment to transparency, we are proud to be a leader in the surety bond industry.