State of the Insurance Market:
2025 Outlook

Surety

The surety market has long been closely linked with the construction industry, playing a critical role in ensuring contractual obligations are met. Surety bonds are becoming increasingly important across various industries beyond construction. These sectors include healthcare, renewable energy, transportation, technology, among others.

As financial strain continues due to tariff uncertainty, supply chain disruptions, labor challenges, interest rate pressure, and tightened bank credit, these sectors experience heightened demand for surety products to protect against potential performance failures and financial risks.

Market Conditions

 

The publicly funded construction market continues to show resilience, supported by infrastructure investments at federal and local levels. However, several challenges threaten to slow its momentum. Tariffs on imported materials have driven up construction costs, leading to inflated project budgets and delays. Additionally, the surety market experienced increased loss activity, primarily due to project delays, cost overruns, and persistent labor shortages, all of which impact contractor performance. Rising material prices and extended lead times have further squeezed margins, elevating the risk of defaults. Despite these pressures, the market remains stable, bolstered by adequate—though slightly tightening—reinsurance capacity and the entry of new surety providers, which have sustained competition and prevented sharp rate increases.

Recent aggressive trade policies, including tariffs and renegotiation of trade agreements, have and will impact material costs and supply chains, leading to increased demand for supply and payment bonds. Material pricing remains volatile, with increased costs for steel, aluminum and electrical components. These shifts heightened the demand for supply bonds and payment bonds to mitigate the risks associated with cost fluctuations and delayed shipments.

Another emerging consideration for contractors is the potential impact of the Department of Government Efficiency (DOGE), a new federal initiative. DOGE aims to streamline bureaucratic processes and reduce regulatory red tape, which could have significant implications for industries dependent on government contracts. If implemented successfully, DOGE could accelerate project approvals, improve government procurement efficiency, and improve the predictability of public-sector funding for infrastructure and renewable energy projects. However, concerns remain about the department's ability to execute these ambitious reforms and the potential for unintended consequences.

The renewable energy sector is another area where surety bonds are gaining traction. With government initiatives and private investments pouring into solar, wind, and other renewable projects, developers and investors are seeking surety bonds to guarantee performance and protect against default. These projects often involve complex regulatory frameworks and extended timelines, where financial or operational setbacks can have significant consequences. Surety bonds offer a means to safeguard against these risks and ensure that projects move forward, even in the face of economic or logistical challenges.

Other Key Industries

 

Aside from construction, healthcare, and renewable energy, surety bonds are becoming more prevalent in several other industries, including:

  • Technology: The technology industry increasingly relies on performance bonds to mitigate risk in large-scale software development or IT infrastructure projects. As contracts grow in complexity and scope, so does the need for security that ensures timely project completion.
  • Transportation and logistics: Surety bonds are playing a larger role in transportation, where they help ensure compliance with government regulations for infrastructure projects, especially as the U.S. pushes for improvements in public transportation systems and the modernization of highways, bridges, and railroads.
  • Waste management and environmental services: Regulatory compliance bonds in waste management are critical for ensuring that companies adhere to environmental laws and regulations. Given the increased public scrutiny on sustainability, these bonds help protect against the financial and environmental risks associated with non-compliance.

Surety Rate Forecast

 
Rate Forecast
Contract Surety Bonds: Flat
Commercial Surety Bonds: Flat to +2%

Recommendations

 
Checkmark-2024-SOTM

With the current market challenges in mind, companies must adopt a proactive approach to surety bonding. Regardless of the industry, businesses should engage with knowledgeable surety advisors who understand the intricacies of the industry in which they operate and the broader market conditions affecting their specific bond needs. This approach can help companies navigate the complexities of contract terms, regulatory requirements, and financial risk management.

Checkmark-2024-SOTM

For contractors, having a team of seasoned professionals – certified public accountants (CPA), financial advisors, and attorneys with industry-specific expertise - can be critical to maintaining solid financials and contracts. This ensures that when economic challenges arise, companies are well-positioned to withstand them without falling into default or breach of contract.

Checkmark-2024-SOTM

Companies should be selective about the projects they pursue, whether in construction, renewable energy, or other industries. The key is to focus on core competencies and avoid projects outside their expertise that may carry higher risks. Businesses should also prioritize geographies where they have proven track records of success and operational efficiency, which can help mitigate the unpredictability associated with new or unfamiliar markets.

Checkmark-2024-SOTM

In the construction sector and beyond, companies must be mindful of the labor challenges that continue to plague many industries. Establishing training programs to develop skilled labor from within can provide a steady talent pipeline, while partnerships with national organizations such as the Associated Builders and Contractors (ABC) or the Associated General Contractors of America (AGC) can offer access to broader talent pools.

Checkmark-2024-SOTM

Finally, it’s essential to prepare for a potential market downturn. While there are no guarantees, companies that are financially stable and have access to surety credit may find opportunities to grow or consolidate their positions when others are unable to perform. This type of foresight can prove to be a competitive advantage, allowing companies to thrive even in adverse conditions.

Surety-Recommendations-SOTM-2024
Surety-Callout-SOTM-2024

Connect with our
Surety Practice

Three-Person-Business-Meeting-1250

The Risk Strategies bond team has the specialty industry experience, expertise, and relationships needed to help you get the most from your surety program.

Find out how we can help >>

When you need a surety bond to guarantee a contract or a regulatory obligation, you need a partner you can trust.

Learn More

Download the Report

 

Our industry and product line specialists have collaborated to provide an update on current trends and market conditions.

We invite you to explore their insights by downloading our latest State of the Insurance Market Report.

Download the Report

State of the Insurance Market Report

 

Explore the Report

Industries

Insurance experts in our industry specialty practices work with our clients and are in the market placing insurance coverage every day. Review their outlook for your industry.

Business Solutions

The experts that support key business product lines across our organization are in the market placing insurance coverage every day. Take a look at their observations on the insurance landscape.

Explore More

Browse other areas within our State of the Insurance Market Report.

The contents of this report are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.