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OLDWICK, N.J.–(BUSINESS WIRE)–A.M. Best believes legislative reform in the bail bond insurance sector of the fidelity and surety market segments has led to significant disruption, and the potential for further changes places the bail bond industry at a critical juncture with respect to its long-term health and viability. According to a new special report, if cash bail were to be eliminated in certain U.S. states, it would have a meaningful impact on the size of that segment of the surety market.

The Best’s Special Report, titled, “Calls to Overhaul the Criminal Justice System Could Cause Major Upheaval For Bail Bond Insurers,” states that over the last five years to year-end 2016, bail bond direct premiums written (DPW) throughout the total U.S. property/casualty (P/C) industry increased by 33% to more than $1.3 billion. This total is derived from all P/C companies filing the annual bail bond supplement, and the premium total is approximately 23% of total surety DPW for the P/C industry. The level of growth in the bail bond market dwarfs the 8.9% five-year growth in DPW for the full surety line of business. Should regulatory reform be successful over time in eliminating the need for criminal defendants to post cash bail to avoid incarceration before trial, it would substantially affect an expanding portion of the surety market.

According to the special report, the aggregate face amount of bail bonds in 2011-2016 written increased by 23%. While this is less than the growth in bond premiums over that time, the fact that the bail bond amount grew during a period when the U.S. economy was growing sluggishly indicates that the bail bond market is not closely tied to the economic indicators and market forces that have driven P/C market volatility. Bail bond DPW grew by 2.2% in 2016, while the face amount of bail bonds written increased by 4.0%.

Since most states regard bail as a form of insurance, bail agents are licensed and regulated like any other insurance producer. Many states require bail agents to prove they have the financial backing of a surety writer to pay for forfeited bail bonds. Bail regimes vary by state, making comprehensive reform difficult, but legislative efforts have been ramped up in many states in an attempt to end the practice of cash bail.

While some surety companies have somewhat diversified portfolios, the potential impact on bail bond specialty writers from potential reforms could be substantial. In states where the need for defendants to post cash bail is lessened significantly or eliminated entirely through bail reform measures, the business of bail bond agents and specialists likely will cease to exist as currently constituted. To the extent that legislative changes result in more and more jurisdictions moving away from defendants relying on a system rooted primarily in secured monetary bail, to systems grounded in more objective risk assessments by pre-trial experts, bail bond insurance specialists could be forced into diversification to survive over the long term.

http://www.businesswire.com/news/home/20170516006333/en/A.M.-Special-Report-Potential-Criminal-Justice-System

A.M. Best Special Report: Potential Criminal Justice System Reform Could Cause Major Upheaval for Bail Bond Insurers