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Why Do Bail Bond Companies Need Insurance?

  • October 12, 2017

Did you ever wonder how bail bond companies or agencies can act as surety for several different defendants, and potentially answer for thousands, if not millions of dollars in bail? How can bail bond companies do this and not go out of business? I mean, what if, by some stroke of ill luck, all the defendants they are acting as surety for skipped bail?

The answer is insurance. Bail bond companies are covered by insurance, too. After all, at the end of the day, a bail bond agency is a business, too.

There are over 30 insurance companies in the United States that underwrite billions of worth of bail bonds annually. The most common method by which defendants in the criminal justice system secure their temporary release is through the services of a bail bondsman, for which they pay a non-refundable fee of ten percent of the total bail amount. This translates to potentially billions of bail bonds purchased every year, which keeps plenty of bail bond companies in operation.

Still, the very business in which bail bond companies operate means that they take on a measure of risk – the risk that defendants may skip bail, which means that the bail bond company has to answer for the entire bail amount. Sure, they can recover the amount they put up from the defendant or from property put up as collateral, but this necessarily takes time. So, to ensure a certain level of protection for the bail bondsman’s business, the business itself is backed by insurance.

Insurance companies that do cover bail bond companies do so by requiring the bail agents to contribute to a common fund, or a build-up fund, that would cover any possible loss or liabilities.  But the reality is that despite the risk-based nature of the bail bonds business, unlike for typical insurance companies, most bail bond agencies hardly face any losses at all from commercial bail.

Based on a 2012 study, no greater than 1 percent was paid by 32 bail bond companies for bail losses for that entire year. When you think about it, even if a defendant does skip bail, when they are brought back to the court’s jurisdiction, chances are that the judge will increase the amount of the defendant’s bail, which means higher premiums to be paid to the bail bondsman, and additional payments to the backing insurance company. It might be said that it pretty much depends on the defendant showing up to court. And while it may seem as though the very industry itself is predicated on high risk, based on the numbers, the risks don’t seem to be that high, after all. One way or another, either on their own or with the assistance of the bail bondsmen and bounty hunters, the defendants are generally brought back to the court’s jurisdiction for their trial dates.

Depending on which state they are operating in, bail bond companies or agencies cannot operate unless they are insured. After all, the state itself has an interest in making sure that bail bond companies have the capacity to pay bail if defendants default. Otherwise, setting bail in the first place in order to guarantee the defendant’s presence during their court dates will not have any teeth. Someone has to pay bail if this should happen. If the defendant is backed by a bail bonds agency, then the bail bonds agency pays. It is to everyone’s interest, therefore, that bail bonds companies can make payment if necessary, and still remain in operation and remain solvent to cover all of their clients’ potential liabilities. But unless they have sufficient assets to cover such a contingency and can underwrite themselves, the most feasible method is requiring bail bond companies to be covered by insurance.

There are many insurance companies that cover bail bondsmen, and many have been doing so for years, building up their reputation in the process. They insure bail bond companies by requiring the payment of a premium into a build-up fund, and this fund is held to cover any potential loss. Technically, it is still the bail bond company or companies who own the fund, though it is held in trust for them by the insurance company, less any fees they may have incurred. Different sureties or insurance companies also offer different additional benefits, such as a nationwide network of agents, lower premiums as the build-up fund increases in value, discounts, software, and various other miscellaneous benefits. The bail bond company has the choice of working with an insurance company that operates nationwide, or smaller surety companies that operate on a smaller scale.