Efficient Automation of Surety Bond Processes: from the Application to Issuance

The processing of surety bonds can be complex and often requires a lot of manual work, especially regarding the interaction between the client company, the contractor and the guarantor. Digital tools can help to simplify these processes and to accelerate them by automating routine tasks such as the issuing of bonds without a reduction in security or quality.

In the commercial world it is common for clients to require a surety bond from their contractors in order to insure a project or business contract. The contractor then turns to his insurance company to apply for the bond. After the relevant checks have been made, the bond is issued and the original is sent to the client company as well as a copy to the contractor. Although the insurance companies have standardized and automated this procedure, the surety bond is still usually issued on paper and delivered by post.

Sometimes, however, the client company demands a special wording of the bond, which is then passed on to the insurance company by the contractor. The insurance company checks the text from a legal point of view and when it has been approved the bond is issued and then sent via E-mail or post. This process can often be laborious because the text has to be re-checked by the guarantor for every new request in order to make sure that no changes have been made. Has something changed in the text? Does it now contain a clause that is not desirable? Has anything changed since the last time the text for the client was issued and signed? This procedure involves time-intensive processes and a lot of manual work. Such special cases are difficult to automate.

In addition, during a project changes can occur that necessitate the adaptation of the surety bond. The updated bond must then be sent to all involved parties again manually and often by post. It is therefore unsurprising that the interaction between the parties is often frustrating and labour-intensive.

The founding of Trustlog GmbH in the year 2020 was a direct answer to the challenges and inefficiencies that exist in this traditional process for issuing surety bonds between the clients, contractors and guarantors. Trustlog GmbH was founded as a joint venture between the two largest issuers of surety bonds in Germany, R+V Insurance and VHV-Insurance, with the vision of developing a standard for digital surety bonds. A central aim was to develop a more efficient, automated solution that covers the entire surety bond process completely digitally, including the use of individual bond texts. Through the integration of Trustlog processes in guarantor systems it is now possible to process surety bonds digitally and issue them in real-time, and then perform all of the follow-up processes using the platform.

With the platform solution and the use of standardized interfaces it has also become possible to exchange and administer surety bonds across systems.

Thanks to the cooperation with Trustlog, SCHUMANN is now able to offer providers of surety bonds an innovative solution: guarantors who are using the CAM Surety software can now access Trustlog services directly from their surety bond administration. This integration makes it possible to access the individual surety bond texts, provided by clients and stored by Trustlog, automatically and to issue digital surety bonds that are accepted without problems by the beneficiaries.

The checking of the bond text via the Trustlog platform takes place at the start of the process. The client companies can upload bond templates themselves and agree them with the guarantors – before the contractor enters the process. This avoids manual checking tasks during the issuing of surety bonds and the client company can be sure that its desired text templates and clauses will be used.

When the contractor requests a surety bond, the SCHUMANN products come into play – CAM Surety, with which the underwriter of the guarantor works, and the Surety Customer Portal, through which the insurance client, i.e. the contractor, can request his surety bonds.

The texts are called up from Trustlog whenever a request is made via the Surety Portal. Miriam Löffler, Product Owner at SCHUMANN, explains: "As an insurance client I can log into the portal and request a surety bond directly. On the application form I can use search functions to identify the beneficiary via Trustlog. If the beneficiary already uses Trustlog, the portal can immediately access the bond texts that have been stored in Trustlog and kept up-to-date. It then goes very quickly: after a few entries regarding type of cover, amount and the acceptance of the general insurance conditions I can immediately take a look at a preview of the bond certificate."

After the form has been submitted, the request is passed to CAM Surety so that the underwriter can check it. Because the text has already being checked and agreed in advance by Trustlog, manual checking of the text is not necessary. This is the stage that offers the greatest potential for automation: If the surety bond is being called up from a facility agreement, the entire process of issuing the bond, from the request by the contractor in the portal to the issue in Trustlog, can be automated as there is no need for the guarantor to check the text manually.

Once the surety bond has been underwritten, the client company automatically receives an E-mail notification and can retrieve the issued bond from the Trustlog platform.

The acceptance of digital surety bonds is only possible with the participation of the client company. Many market participants are already trying to replace surety bonds on paper with PDF files, which is only a partial solution to the difficulties associated with the paper version. For example, all of the follow-up processes for the PDF variants continue to take place in paper form. "In the development of Trustlog we considered the process from the point of view of the client company consequently right from the start. The switch to digital surety bonds will only be possible if the client companies accept and actively demand them. More than 1500 such companies who use Trustlog every day show us that this is the right way to go," said Markus Scherer, Product Lead at Trustlog.

In contrast to the old "paper world", the beneficiary can either accept the surety bond with a click or, if corrections are necessary in specific cases, can reject the bond and enter the desired alterations. These desired alterations are then displayed directly to the underwriter as a task in the CAM Surety System. The underwriter then issues an update, which becomes available in Trustlog. "Customers have reported to us that the whole process with the paper surety bonds generally took a week from receiving the paperwork through checking it to registering it in their own system and now, thanks to the digital processes with Trustlog, the necessary time has been reduced to less than an hour", reported Scherer.

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