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Maryland Insurance Administration Recommends that the Individual Surety Law Should Sunset in 2014

Friday, December 6, 2013  

The Maryland Insurance Administration (MIA) recently issued its report on the practices of corporate and individual sureties in Maryland. Under a 2012 law, the MIA was required to conduct an analysis of the regulation of the surety market in Maryland and make recommendations for both corporate and individual sureties going forward.The report was required to be submitted prior to the 2014 state legislative session as the individual surety law is due to sunset in 2014.Overall, the MIA concluded that corporate sureties can meet the needs of the Maryland surety market and that the existing regulatory scheme for corporate sureties and bond producers is adequate.The MIA recommends that the existing law authorizing unregulated individual sureties on public works contracts should be allowed to expire as scheduled on September 30, 2014.

In conducting its study, the MIA surveyed the following groups: state agencies, counties, municipalities and school boards, state insurance departments, the Maryland property-casualty guaranty fund, surety bond producers, the Maryland Board of Public Works, the Department of Transportation and the Department of General Services, corporate sureties, individual sureties and contractors.From the public entities surveyed, the MIA found that since individual sureties were permitted in 2006, only six individual surety bonds have been submitted—two were accepted and the bid awarded to the contractor, two were rejected, the contractor voluntarily withdrew one and the other was withdrawn due to re-bidding of the entire project.From the survey of the other state insurance departments, MIA learned that Alaska and Hawaii are the only other states that permit individual sureties.According to what the states reported, Alaska allows individual sureties on public works contracts, and Hawaii allows an individual surety bond as a security deposit on commercial concession leases of public property.Since the individual surety law went into effect in 2006, one state has sanctioned a corporate surety, while Maryland and at least 14 other states have taken 26 administrative actions against 12 individual sureties according to the information that the state insurance departments reported.From the producers, contractors and the Maryland guaranty fund, MIA found that there was no impact on the availability of bonds as a result of the two insolvencies in the last ten years of corporate sureties doing business in Maryland. The guaranty fund paid all claims in full.From the corporate sureties, the MIA gathered information about the robust surety market in Maryland, with 145 licensed sureties.The MIA also noted the number of programs that exist, including SFAA’s Model Contractor Development Program®, to help small and emerging contractors obtain bonds.

Based on the information collected, the MIA report addressed the specific questions that it was required to address, including whether individual sureties should be licensed and regulated like other sureties and whether their authority in Maryland should be expanded.The MIA concluded that there are existing licensing laws for insurers and producers in Maryland for persons or entities that want to solicit or issue bonds in Maryland.Given the robust market in Maryland, that few other states permit individual sureties and the number of regulatory actions taken against individual sureties around the country for unauthorized insurance, the MIA concluded that there is no reason to continue permitting unregulated individuals to solicit or issue surety bonds in Maryland.

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