Insurance Program Bonds

Private insurance plans for businesses may require collateral to secure the policy.  A Merchants Bonding Company insurance program bond is a cost-effective solution to meet this collateral requirement. 

TYPES OF INSURANCE PROGRAMS

Incurred Loss Retro Insurance Programs

Retro insurance programs are loss sensitive insurance programs on which the insured assumes more risk than a fixed cost insurance program. The policy premium is adjusted with a retroactive perspective; the loss experience during the previous term will determine the upcoming term’s premium.  

With a retro insurance program, the insured takes ownership of their risk, similar to self-insurance. They set aside a pool of money to be used for losses, making them more aware of claims paid and safety protocols in place. If losses are low, cash flow can be retained by the insured.

Why is this program bonded? 

To secure a retro insurance program, collateral in the form of a surety bond, cash or ILOC (irrevocable line of credit) is often required from the insured by the carrier. The surety bond allows the insured to keep more cash on hand, requiring only an annual premium based on the insurance program size. If the insured is not able reimburse the insurance carrier for their portion of the risk, the surety bond will provide the necessary capital in valid claims situations. The bonded principal or insured on the plan will be held liable for repaying the surety.

Large Deductible Insurance Programs

In a large deductible insurance program, the insured’s premium is based on the size of the deductible. A larger deductible will lower premium, but collateral is required to guarantee the insured’s deductible. 

Why is this program bonded? 

A surety bond is a valid form of collateral which allows the insured to keep more capital on hand or free up lines of credit more so than other collateral alternatives.

In a large deductible insurance program, the carrier pays the claims and then recoups the deductible from the insured. If the insured is unable to repay those claims up to their deductible limit, the surety will step in to back the insured as needed.