Surety Bonds: When Receivables Are Not Recevable

Surety bond underwriting involves many elements, and financial analysis is always one of them. In this newsletter, let's look at a single element, an important one, and how you can influence the effect it has on bonding decisions.
Accounts Receivable "A/R" are the funds owed by outside parties to the company for work it has performed. This is a Current Asset and is part of Net Worth. Active contractors always have such money due them. The number can be significant for firms in a growth mode. Problem: Sometimes bond underwriters discount, or disallow part of this figure, thus reducing the applicants recognized financial strength and bond worthiness. Why does this happen and how can you influence the outcome?
One reason for such assets to be disallowed is the age of the individual receivable on the fiscal year-end (FYE) financial statement date. In order to be conservative, A/Rs that are 90 days old or more "over 90" are assumed to be uncollectable, and therefore are disallowed. (Key word: Assumed)
Same with receivables arising from change orders that are unapproved or in dispute. Projects with performance problems may have all payments held up by the owner, and therefore related A/Rs may be disallowed. In fact, receivables may be discounted if there is a dramatic increase over historic levels, even if there is no apparent reason to doubt the collectability of the funds.
When A/Rs are disallowed the Working Capital calculation suffers as well as the ratio analysis.
This can reduce or eliminate the contractors bonding line.
Here are some possible cures.
Retainages - A/Rs over 90 days old may be acceptable if they are actually Retainage which is slightly different from a true "trade receivable." Identify if any of the A/Rs are actually Retainages. They should be separated from the A/R analysis and "allowed."
Over 90s - Older A/Rs are allowable if they were subsequently collected (no matter how old they became.) Ask the client or accountant for an update regarding the collection of year-end receivables. All collected items are included in the financial strength analysis. The underwriter should be updated if they are eventually collected at a future date. The client will be penalized for a disallowed A/Rs for 12-15 months after the fiscal date. Updating the file when funds come in could help achieve a bond approval any time during this period.
Change Orders - The same concept applies to COs no longer in dispute or project issues that are resolved. All A/Rs that are ultimately collected are allowed, regardless of how late they occur.
Payment Bond - If our client is a subcontractor, there may be a Payment Bond "above them" available for claim. An over 90 A/R might be allowed based on the existence of this safety net.
Caution: If an aged schedule of year-end A/Rs is produced at a subsequent date, items that were not over 90 at FYE (but remain open) may now may be old and therefore disallowed! It works both ways.
Conclusion
The financial analysis associated with surety bond underwriting is primarily focused on the fiscal year-end financial condition of the company. These numbers drive the bond line until the next FS is issued - normally about 15 months.
The receivable collection is an ongoing process that warrants interpretation and monitoring because of its changing nature.

Steve Golia is an experienced bond underwriter and counselor. He can be reached at 856-304-7348.
http://www.IBCS.com

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Surety Bond Forms

This probably sounds like a boring subject. "Mundane" comes to my mind. But you'd be surprised how important it can be. The bond form can bring an agent's production opportunity to a screeching halt. They can also turn a previously good project into an ugly mess.
Let's break it down. Bond forms can be categorized in the following groups:
STATUTORY / STANDARD - required by statute or regulation such as city, state or federal forms. There are also industry standard forms such as the American Institute of Architects (AIA).
COMPANY FORMS - devised by the surety itself.
SPECIAL OBLIGEE FORMS - These are written specifically (manuscripted) to satisfy the expectations of a private obligee such as a general contractor (GC) who requires subcontractors to use them.
So how do you recognize each category and what happens next?
A STATUTORY FORM is stipulated by a public body (such as federal form 25 Performance Bond). It will have their name pre-printed on the form and may have edition numbers or other ID showing it is theirs. If you bond a federal contract, you MUST use this - no option. STANDARD FORMS are used when the bonding requirements say an AIA bond form must be issued. These are reasonably fair to all parties and are well accepted by all parties involved.
COMPANY FORMS are written in a manner the surety prefers. These are the underwriter's first choice and may be accepted by the obligee (party requiring the bond) if no mandatory bond form was indicated. Spot these by their ID numbers or copyright info. The surety's name will be pre-printed on the form.
SPECIAL OBLIGEE FORMS - may look different than normal. Sometimes they are extremely short. Less is not more in bond forms. Generally, short forms omit the "rules of the road" that determine what should happen when trouble occurs, how a claim is made, what remedies are available, etc. These forms can be troublesome. With perfectly good, tried and proven bond forms available such as AIA, why would a GC spend time and money to invent a new one? Assume such special forms are more beneficial to the GC and less fair for the subcontractor (called the Principal) and the Surety. Sometimes these forms are practically normal. But most often we find they place unique burdens on the Principal and Surety.
Since the GC is a contractor, in the event of a default, they may just want to step in, finish the subcontractors work (not worrying about the cost) and then hand the bill to the surety. This would be evident when reading the bond form. The surety will consider this a forfeiture bond or financial guarantee because they were deprived of the opportunity to arrange for the economical completion of the work. Such bond forms can prevent the surety from supporting the project, no matter how confident they are in the contractor.
Summary: Contractors and their bond agents cannot ignore the bond forms. The contractor may only be concerned about signing the contract. But experienced bond agents and underwriters will always evaluate the forms. If the surety throws up a red flag, the contractor should be equally concerned. Problems caused by a bad bond form may start with the surety, but they end up on the shoulders of the contractor.

Steve Golia is an experienced surety bond underwriter and counselor. He can be reached at 856-304-7348.
http://www.IBCS.com

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Three Stages in the Auto Insurance Claim Process

The first few hours-and days following a vehicle accident are stuffed with stress and honest confusion for most insured drivers. Many yearn for someone to take over the entire process for them. An insurance claims adjuster employing the right approach can provide a calming effect, the needed expertise and sound advice.
Every insured driver that is involved in an auto accident needs to understand that there are commonly six elements of proof that most insurance carriers review and three stages in the auto insurance claims process:
1. what the insured tells you, the insurance company
2. the other driver's perception of how the accident occurred
3. what the police report states happened
4. the eye witnesses testimony
5. the physical damage at the scene
6. medical records for the treatment of any related injuries
How your insured handles an auto accident from immediately following the incident, through the First Notice of Loss (FNOL), to the final settlement will be critical in contributing to a quick and fair solution.
Stage 1: At the Accident Scene
The dynamics at the accident scene typically precede the adjuster's involvement and are more likely to be influenced by the insurance agent or the police. The first step is to report the accident. The insured driver should always call their insurance company from the scene if possible to report the accident even if they think the other party is at fault. This First Notice of Loss (FNOL) will help to establish proper coverage, the extent of damages and liability.
Stage 2: Immediate Follow Up - Gathering the Facts
As soon as possible after the accident the insured best options are to make notes of the time of the incident, the directions each vehicle was traveling, the speed they were traveling and any other details while they are fresh in their mind.
Once reported to the insurance company an adjuster will most likely advise the insured when they will be coming out to see the insured vehicle to assess the damage and the insured should be advised if the insurance carrier you represent has a direct repair program and how it works.
This is the best time to take pictures of the damaged auto from various angles and snap shots of any areas of injury to themselves and their passengers.
Stage 3: Management & Settlement Resolution
To create a smooth workflow from accident to a resolution, make sure to have these items in order:
• Suggest to the insured that they keep a daily journal on injuries, the extent of the pain and any medical treatment that has occurred.
• Keep on top of the insured to track travel expenses to and from all medical appointments and maintaining all medical receipts including any prescriptions, equipment and health insurance co-payments is also wise.
• Documenting any lost time from work related to accident injuries and reminding the insured to share all related documentation, receipts and correspondence with an adjuster is important.
Once you have completed your review of the incident and you are ready to offer a settlement, you should be prepared to detail how you reached the proposed amount, explain what the settlement includes and encourage questions and comments from the insured regarding any missing items or remaining issues.
Finally if you are unable to agree on a settlement, you should advise the insured driver that they have the option of filing for arbitration or filing legal action.
Conclusion
With more than 220 million cars on the road, the odds are that sometime in their driving lifespan an insured driver will be involved in an auto accident. Dealing with the unexpected is an emotional time that produces high anxiety. It is critical during the early aftermath of an auto accident that an insurance adjuster is perceived as an important ally who can provide a calming influence and assist the insured in understanding the stages of the claims process and the proper steps to follow to clear up their confusion and minimize their stress.
Three important tips that will assist an adjuster to be seen as the solution rather than an adversary or part of a seemingly overwhelming problem are:
1. To establish yourself as a calming influence and not the adversary you should exhibit good listening skills, express empathy for the insured's situation (including emotional stress, medical injuries and assistance in dealing with vehicle repairs) and outline the steps that will lead you and the insured to a resolution.
2. An adjuster who checks to follow up on vehicle repair progress, rental replacements and medical treatments weekly will maintain the best opportunity to achieve amicable closure.
3. Finally, it is particularly important to communicate frequently and thoroughly with the insured all the way through the claim and settlement process to instill confidence in them that you are working toward a fair and reasonable outcome.

JDi Data Corporation has provided insurance claims software since 1992. Claims management software from JDi Data is preferred by many insurers, risk managers, and third party administrators for property and casualty, medical malpractice, and specialty lines. JDi Data has built a reputation in quality claims management software with special emphasis on complex litigation.

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Benefits Of Getting Multiple Insurance Quotes All At Once

Looking for the lowest health insurance quotes? Consumers can derive an added advantage of getting multiple insurance quotes for each line of insurance. By getting multiple insurance quotes from different companies you will dramatically increase your chances of saving money on insurance premiums. Also, the importance of getting a good company with a fair price cannot be stressed enough. Here's how you can do it by following a few easy steps.
Identify Plans That Fit Your Requirements
There is a wide array of insurance companies and insurance plans available in the market today. However, only a limited number of insurance plans will actually meet your needs. This is where the challenge arises. You will have to identify those plans that will fit your policy requirements and budget perfectly. The disparity in rates between insurance companies can often vary significantly. Simply shop around and compare multiple insurance quotes for each line of insurance. This will help a consumer save a considerable amount of money on insurance premiums.
Check What The Competitors Have To Offer
Finding a good company with integrity that offers a fair price, is crucial. Always compare what the competitors have to offer. Through an online quote comparison service, several people have been able to save greatly on their health insurance quotes. Inquire whether the insurance plan has any out of network coverage? If yes, how do the benefits differ from the in network benefits? Does it cover accidents? Find the relevant coverage that will suit your needs at the best possible rates.
Consider Multiple Line Insurance
Another easy way of saving up to 10% on your insurance premiums, is by getting multiple line insurance discounts. You can get various insurance policies such as health, life, car, property etc, under one insurance company's roof. This will typically lower your aggregate rates if you let the insurer underwrite multiple coverages. Cheaper rates can be obtained by getting multitude quotes from a single company. In other words, if you are seeking multiple line of business with your insurance company, such as life and auto insurance, then you can easily save money by getting coverage from one company. Keep this in mind while comparing rates for getting multi-line savings.
It is important to sign up for an insurance policy only after comparing insurance quotes of several insurers. When you compare quotes, you can be rest assured that you are saving both money and time. This is because you are guaranteed to instantly receive the lowest insurance quote. A single form that has been filled out into a multiple quote comparison website, will fetch several estimates immediately!

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How To Become an Insurance Adjuster in a Non-Licensed State

If you're looking for a new income stream to add to your current job or as replacement income, becoming an insurance claims adjuster can prove to be quite lucrative. This is especially true for CAT adjusters. CAT stands for Catastrophe and refers to insurance adjusters who work the claims from tornadoes and hurricanes.
Most states require a license, but about 15 states such as Colorado have no licensing requirements for adjusters. If you live in a state that doesn't require a license, working in your home state is not an issue. However, when you want to work in other states that require licensing, such as Texas, Louisiana, Mississippi, Alabama, or Florida, it is important to lay the proper foundation. You want to be ready to accept assignments without last minute delays.
First get a Non-Resident license from another state such as Texas. Then you can simply get most other states' licenses through reciprocity. Reciprocity means that the states which require a license will recognize your home or designated home state testing, and issue you a license for their state with only a simple application and small fee. They won't require you to go through their testing requirements to get licensed.
Here's an example:
John lives in Colorado, which has no license requirements. He takes a Texas All-Lines Pre-Licensing course approved by the Texas Department of Insurance. He then applies for his Texas Adjuster License and states on his application that Texas is his 'Designated Home State'. This can only be done if you live in a state that has no licensing requirements for insurance adjusters.
Once he receives his Texas Adjuster License, he can immediately apply for his license in Louisiana, Mississippi, Alabama, and Florida using reciprocity. He only needs to fill out the application and pay the application fee to receive licenses in each of those states.
Texas is by far the most popular place to get a non-resident license. It's also the easiest place to get Continuing Education credits to maintain your license. Keep in mind that even if you hold 5 different state licenses, you are only required to meet the continuing education requirements for your 'Designated Home State' license, such as Texas.
Other states such as Indiana allow you to get a non-resident license, but unfortunately it's harder to find Indiana CE classes to fulfill license renewal requirements.
Remember, though, if your state has a licensing process for insurance adjusters, you almost always must get your home license first. There are also a small handful of states that do not allow reciprocity and require everyone to go through their licensing process to work as an adjuster in their state.
Here's the simple guideline:

1. If your state has a licensing requirement for adjusters, get your home state license first.
2. If your state does NOT have a licensing requirement, get a Texas Non-Resident license with Texas being your 'Designated Home State'.

This will save you time, money and keep things simple. Becoming a claims adjuster can be a great part-time or full-time career. Now is a good time to take your licensing training and get ready for income generating assignments.

http://www.2021Training.com provides training and CE's for insurance adjusters, including licensing for the state of Texas. We create affordable online training and provide an interactive experience by delivering audio/video training that's highly regarded by our students. We train individuals to become professional adjusters with the best possible chance of success.

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