Shortly after Zach Mefferd and Ryan Swalve launched Coverage Direct in 2016, they quickly discovered a major challenge while running the independent insurance agency based in West Des Moines: How to Use Technology to Make It Easier and Easier for Customers to get a niche insurance product – surety.
On January 1, they launched ZipBonds, an insurance technology company focused on building an online platform that aims to improve and simplify the process of obtaining guarantees.
“We still believe the independent agency channel is the best way to get insurance, but unfortunately it has not kept up as well as others in the tech space,” said Mefferd.
ZipBonds recently joined a group of 27 national surety companies, including Merchants Bonding Co. of West Des Moines, in a project aimed at streamlining the process of applying for surety powers. Organized by the Institutes RiskStream Collaborative – the largest blockchain consortium in the insurance industry – the Surety Bonds Power of Attorney Lab brings together representatives from guarantors, brokers and agents as well as solution providers.
“Traditionally, if a contractor wants to make an offer, they have to drive to town hall, submit a bid guarantee or checkout, and jump through the hoops to get the offer approved,” said ZipBonds co-owner Swalve. “If you miss a tiny detail, the entire offer will be rejected. You can’t screw it up with this blockchain – it eliminates the potential for human error, prevents fraud and saves time. ”
As defined by the National Association of Surety Bond Producers, a bond is “a promise to be responsible for someone else’s debt, default, or failure. It is a tripartite contract in which one party (the surety) guarantees the performance or obligations of a second party (the client) towards a third party (the obligee). There are two broad categories of guarantees: contractual guarantees; and commercial (also referred to as other) guarantees. “
ZipBonds was Bootstrap-funded by its two co-owners, who worked for NCMIC Group Inc. in Clive for three years prior to founding their agency. The startup currently only has two full-time employees – one on the contractual guarantee side and one on the commercial side.
“We’ve also been very fortunate to work with great people on a fractional level,” said Mefferd. “So we have a faction tech team that basically does all of the development for us. We will seek to hire someone full-time in this area in 2022 and then we will continue to fill fractional positions as Chief Marketing and Chief Financial Officer. ”
ZipBonds currently has close to 8,000 commercial guarantee forms in its database that allow independent brokers and consumers to select, purchase and print the guarantee they need for the commercial side. On the contract side of the market, ZipBonds has also developed a proprietary underwriting model that enables the company to pre-qualify contractors who require a contract guarantee of up to $ 750,000 in a much more efficient manner.
“We are still in the infancy with what we want to achieve with our platform,” said Mefferd. “We are committed to providing the industry-leading platform for security – both direct to the consumer and a concierge service for independent agents who don’t have subject matter experts in their offices. … So if we can integrate these things into the blockchain and provide the platform that agents and consumers use, that is success for us. ”
Merchants Bonding Co., the largest loaner in Iowa and one of the top 10 loaners nationally, has been part of the loan guarantee project because of the potential value it will have for the loan guarantee industry, said Brad Rasmussen, chief information of Merchants Bonding Officer.
“That’s the thing about the bond business,” said Rasmussen. “With so many parties involved, we all need to work together on some of the problems our industry is facing.” The proxy lab aims to simplify the process to make it less prone to error, he said.
“The less often a person has to go [into the system], the better. If it’s done once and shared automatically, that’s better. There are also public information stores so with a piece or two of information from the customer we may be able to pre-populate the information to minimize human input. ”
The blockchain project could solve a particular business problem faced by all surety holders regarding the power of attorney in relation to identifying the individuals who have the right to sign that property through access to a central custodian, Rasmussen said.
“With blockchain, there is much less paper movement required,” he said. “We think it’s revolutionary; We think it has a lot of potential. We want to be the leader in these tech games, and that’s one way we do that. The beauty of it is that with so many companies involved, the opportunities for the entire industry are higher. ”
Using the technology could also help lower the cost of guarantees for customers, Rasmussen said. “The more parties you have in a transaction, the more time it takes to get a wet ink signature – if you eliminate some of them, your costs go down,” he said. “I think this is a by-product of implementing some of these technology solutions to the challenges we are facing.”
Rasmussen said he anticipates implementation of the proxy project will begin in a few months, in 2022.
A concrete proof of concept would be an advantage to show the industry what is possible, said Mefferd of ZipBonds.
“This will very likely lead to other projects that deal with other specific parts of what it would take to make this a successful business in the long term,” he said. “It’s just really hard to help people see the potential of a new technology like this without giving them a tangible version of what we’re trying to achieve.
“So I think that the institutes are working very well to focus specifically on a small part of it with the overall larger perspective [whether] We can find out and get some traction here, and we can start scratching at all the other things that are required to make this usable. “
$ 1.2 trillion infrastructure bill guarantees required
Contractors applying for projects funded by the $ 1.2 trillion Infrastructure Bill are required to be given guarantees under a bipartisan amendment that is unanimously added to the bill before it is passed. Van Hollen’s 2354 Amendment, named after Senator Chris Van Hollen, a Maryland Democrat, received a unanimous 97-0 vote. The bipartisan change was endorsed by Mike Rounds, RS.D., Mark Kelly, D-Ariz., And Joni Ernst, R-Iowa.
“This 97-0 vote represents a truly bipartisan attempt to provide the protection and services necessary to meet our country’s immediate and future infrastructure needs,” said Lee Convington, President and CEO of the Surety & Fidelity Association of America. when adopting the change. “It shows the value and importance of building guarantees for the success of all federally financed infrastructure projects.”
Brad Rasmussen, chief information officer of Merchants Bonding Co. in West Des Moines, said his company is expecting more loan guarantees from contractors as billions of dollars in federal contracts flow through the country. “And that’s fine,” he said. “We are ready to support that.”
Merchants Bonding establishes new division that focuses on small, emerging contractors
Specialty Solutions Partners with Revamped SBA Loan Guarantee Program
Merchants Bonding Co. announced in October the launch of Specialty Solutions, a new insurance line of business focused on delivering solutions to small and emerging contractors looking to qualify for a guaranteed loan.
Specialty Solutions will focus on the Surety Bond Guarantee Program offered by the US Small Business Administration. As part of this program, traders will issue, monitor and maintain bonds for small and diverse contractors who have the knowledge and skills necessary to succeed, but who may not yet meet all of the criteria that other guarantees require.
“At Merchants, we are experts in sound guarantee solutions and we want to use our expertise to help high quality contractors who are working hard to build the character, capacity and capital required to qualify for guarantee loans,” said Steve Dorenkamp, Vice President of Specialty Solutions.
Merchants has teamed up with Peter Gibbs, former director of the SBA Office of Surety Guarantees who now runs his own agency, Foundation Surety and Insurance Solutions in Washington, DC. Gibbs previously worked for the SBA for 32 years.
“Peter is the type who can help a small and emerging business navigate the forms because in the [surety] Industry is seeing the SBA as a difficult process, “said Therese Wielage, Merchants’ chief marketing and communications officer. “Five years ago you may have seen different shapes in the SBA offices of different cities. Under Peter, SBA has changed a lot to make it better and easier for the industry. … So we’re trying to get the message across that it’s not as difficult as it used to be. “