Surety Bond Professionals is a family-owned and operated bonding agency with over 75 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.
Why are insurance costs in the construction industry rising?
After 31 consecutive quarters in which insurance costs increased in the U.S. market, the second quarter year-over-year increases reached approximately 3.7% according to the Insurance Agents & Brokers Council. Key factors driving insurance costs upward include:
- Higher jury awards in liability cases
- Insurance company losses due to extreme weather events
- Rising rebuild/repair costs
Each of these affects job cost, schedule risk, and retained risk—the very things sureties analyze.
Why do higher insurance premiums matter to your bonding capacity?
Sureties underwrite your ability to finish work and pay bills. They look hard at a contractor’s profitability, liquidity, leverage, backlog health, and cash flow, all of which feel the impact when insurance costs rise. Premium spikes for general liability, commercial auto, workers’ comp, and builders’ risk reduce working capital and shrink margins on in-progress jobs.
The result: a thinner balance sheet and tighter cash flow, which can cause a surety to trim single-job and aggregate bonding limits or impose extra conditions.
What underwriting metrics do sureties use?
Sureties rarely use a single formula, but common metrics include:
- Working capital tests
- Net-worth/Equity tests
- Backlog quality
- Cash flow consistency
None of these are one-size-fits-all measures, but together they form the “capacity box” your program must fit inside.
How can you increase bonding limits despite higher insurance costs?
Reprice current jobs and upcoming bids.
Update your estimating templates to reflect today’s actual insurance premiums, deductibles, and surety bond costs. Include a contingency cushion for possible mid-year increases.
Protect and grow cash on hand.
Negotiate mobilization payments (early cash to start work), billing for stored materials, and lower retainage where possible. Shorten billing/collection cycles and increase your committed bank line of credit (sureties view additional liquidity as risk-reducing).
Give underwriters a forward plan.
Provide a 12-month cash-flow forecast, work-in-progress (WIP) schedules with projected close-outs, and a calendar of expected insurance payments. Show how margins improve as new bids reflect updated costs.
Choose deductibles you can truly carry.
Balance deductible levels and any self-insured retention (SIR) against your real cash capacity. A slightly lower deductible that stabilizes cash flow can support bonding limits better than chasing small premium savings.
Tighten safety and fleet controls.
Drive down your Experience Modification Rate (EMR) and clean up driver Motor Vehicle Records (MVRs) with training, telematics, and enforcement. Lower loss trends cut premiums and signal strong risk management to your surety.
Use partnerships to stay within bond limits.
Consider joint ventures (JVs) or selective subcontracting to split large contract obligations. This helps you keep single-job bonding needs in range while preserving revenue opportunities.
Upgrade financial reporting quality and speed.
Move to CPA-reviewed or audited financial statements, strengthen WIP reporting, and close your books on a regular schedule. Higher-quality, timely financials can earn underwriting credit that offsets market cost pressure.
How do rising insurance costs affect different types of construction bonds?
Bid Bonds:
When insurance premiums cut into working capital, sureties may limit how much bidding capacity they’ll support at once. Keep cash and credit lines strong to protect your bid bond program.
Performance Bonds:
Tighter margins and cash flow can make sureties cautious about large performance bonds. Proactively show how you’ve updated pricing, insurance budgeting, and WIP schedules to maintain healthy margins.
Payment Bonds:
Higher insurance expenses can slow subcontractor payments if cash gets squeezed. Sureties track payment performance closely. Consistent, on-time payments reassure underwriters that your program remains stable.
Bottom line: what’s the playbook?
Treat insurance like any other major input: measure it, price it, and communicate it. Translate rising premiums into cash-flow impacts, then present your mitigation plan to both the surety and your customers. If you protect working capital and demonstrate disciplined risk management, you can stabilize, or even grow, bonding limits despite a harder insurance market. Learn how contractors are offsetting cost pressure with smarter operations in our companion article: Construction Tech in 2025, Q3 and Q4.
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Frequently Asked Questions
How quickly can higher premiums affect my bonding program?
Right away on cash; within a quarter on financial ratios. At renewal, you owe a down payment, and monthly installments begin, both reduce cash on hand (working capital). Within one reporting cycle (often a quarter), your income statement shows a higher insurance expense, which lowers net income and equity metrics that sureties watch. Many sureties also conduct interim reviews if they see liquidity tightening. What to do now:
- Stage renewals to avoid one big cash hit.
- Update job pricing immediately so new awards reflect higher insurance costs.
- Share a 12-month cash-flow plan with your surety showing how you’ll preserve working capital.
Does a higher EMR hurt bonding even if we’re profitable?
Yes. The Experience Modification Rate (EMR) directly affects workers’ compensation premiums and serves as a shorthand for site safety. A rising EMR can signal future loss volatility even if you’re currently profitable. Sureties weigh trendlines and controls, not just last year’s earnings. What to do now:
- Implement targeted safety interventions (near-miss tracking, supervisor coaching, task-hazard analyses).
- Document training, corrective actions, and leading indicators; bring a one-page “safety scorecard” to underwriting meetings.
- Aim for multi-year improvement, not a quick fix. Sustained reduction in frequency and severity of safety problems influences both EMR and underwriting confidence.
Should I switch to higher deductibles to lower premiums?
Only if your cash and claims controls can handle the volatility. Bigger deductibles or Self-Insured Retentions (SIRs) cut premiums but shift more loss cost to your balance sheet. Sureties often haircut working capital for unpaid losses and IBNR (Incurred But Not Reported) reserves. If retentions are too high, bonding capacity can shrink. What to do now:
- Model “bad-case” cash calls (e.g., two medium losses in a quarter) before increasing deductibles.
- If you do increase retentions, set aside a restricted claims reserve and tighten incident reporting/claims closure.
- Revisit annually; don’t lock into a retention that outpaces your liquidity.
Will premium financing help my bonding?
It can, if used wisely. Premium financing spreads payments, smoothing cash outflows that sureties like to see. But it also creates short-term debt, which reduces net working capital. The net effect depends on your liquidity and whether your bids and change orders now price in the full, financed cost of insurance.
