Big Insurance behind bail bonds

In April 2014, two bounty hunters apprehended Stevie Light at her house in Roseville, California, for failing to show up for a court hearing.

Six months earlier, Light had been arrested by local police for possession of a controlled substance and for cultivating marijuana with an expired permit. A judge set her bail at $20,000. The high-school graduate and her family could not afford the full bail amount, so they sought help from a bail bondsman.

“It's my responsibility. I could have called the court or the bail bond guy and figured out what I should have done from there. But I didn't,” the 21-year-old lamented as she was being driven back to jail. Light said she had attended her court date, but her name was never called.

As Fault Lines examines in this week’s episode “Chasing Bail,” in all but four U.S. states, defendants who have been arrested can secure temporary release from jail by buying a bail bond. They pay a nonrefundable fee, usually 10 percent of their bail, in exchange for a bondsman’s promise to pay the full amount to the court should defendants fail to show up for their hearing. Commercial bail is the predominant form of pretrial release in the U.S., and is fundamental to the functioning of the criminal justice system.

Arrested Americans purchase billions in bail bonds every year, supporting thousands of small bail bond companies around the country. But the industry is much larger than the mom-and-pop bail bond shops that are omnipresent outside county courthouses. Bail bond companies can only operate if they are insured by national commercial insurance companies—or, surety companies, as they are called in the business.

When Stevie Light’s bond company bailed her out of jail, the  Accredited Surety & Casualty Company guaranteed the $20,000 investment.

Accredited Surety is one of more than 30 insurance companies that underwrite roughly $14 billion worth of bail bonds annually in the U.S. The largest is AIA Bail Bond Insurance Company, which underwrites $700 million worth of bail a year. Other leading sureties include American Surety Company, Financial Casualty & Surety, Safety National, and United States Surety Company.

Bail surety is unique in the insurance industry. Unlike a traditional insurance agreement between an insurance company and the insured, surety bonds are a three-party agreement involving the principal (defendant), the obligee (government or court), and the surety (bail agent).

Surety companies make money by charging bail agents a 10 percent fee on every bond issued. For instance, when Light paid $2,000 to her bondsman, the agent in turn paid $200 to the surety company. Moreover, surety companies mitigate their risk by requiring bail agents to contribute to a build-up fund (BUF)— essentially a savings account controlled by the surety company that is supposed to cover any potential liabilities. In most cases, the bail agent has no access to the BUF account.

Crucially, surety companies face virtually no losses from commercial bail, despite the risk-based nature of the insurance business. For instance, auto and property insurance companies typically pay out 40 to 60 percent of their revenue in losses, however, a review by Mother Jones  of the 2012 financial records of 32 surety companies shows that they cumulatively paid less than 1 percent in bail losses. For the insurance industry, bail bonds are not only lucrative, they’re nearly risk-free.  

In Light’s case, the judge increased her bail to $30,000 for failing to appear in court. Stevie paid her bail agent an extra $1,000 to secure her freedom, $100 of which went to Accredited Surety. Her next court appearance is May 24, 2014.