Bonds

In Florida, any construction company owner or officer who has to take on the financial responsibility of the business, needs to get licensed with the State of Florida Department of Business and Professional Regulation. As a part of the licensing, they need to provide a financially responsible officer bond. This ensures compliance with the 2014 Florida Statutes.

The bond requirement is currently active in the state of Florida. However, when you start licensing your construction business, it’s best to check with your state authorities whether you need a FRO license and bond.

The bond price you have to pay depends on the bond amount that you are required to present to the licensing authorities. The Florida financially responsible officer bond amount is set at $100,000.

However, the required bond amount is not your bond cost. The bond premium is only a fraction of this bond amount. If your finances are strong, you are likely to pay a premium between 1%-5%.

What factors affect your bond price? Your surety must take a close look at your personal credit score, business finances, and assets and liquidity. It may also consider your professional experience. The purpose is to determine the risk of getting you bonded. If your financial stats are in good shape, you can expect a lower bond cost.

Want to learn more about how your bond price is determined? Go through our surety bond cost page for further information.

You can start your bonding process today. Just apply online today for a free bond quote. If you want an exact bond price, submit your full application and paperwork. We’ll deliver it to you in no time

A dividend plan (also called a participating plan) is a rating plan that allows businesses to share in the profits of the workers compensation insurer.1 It pays a dividend to businesses that have prioritized workplace safety and successfully controlled their losses.

Dividend plans vary from state to state and insurer to insurer. Most have a minimum premium threshold you must meet in order to enroll. Some also specify a maximum loss ratio. Your loss ratio is expressed as a percentage and is calculated by dividing your losses by your premium. Dividend calculations are based on your incurred losses and earned premium.

Some insurers use dividend plans developed by the NCCI while others use their own proprietary plans.

Incurred losses are losses you have sustained during the policy period. They include losses your insurer has already paid and reserves for losses your insurer expects to pay. Incurred losses also include allocated loss adjustment expenses. These are expenses your insurer has incurred to settle specific claims.4 Your earned premium is based on your actual payroll and is determined when an audit is conducted after your policy has expired.

The following example demonstrates how your earned loss ratio is calculated. Suppose that you were charged $8,000 for a workers compensation policy that ran from June 1, 2019, to June 1, 2020. An audit conducted in August of 2020 showed that your payroll had increased during the policy period, generating $1,000 in additional premium. Your earned premium for the policy year was $9,000. If your incurred losses for that period were $2,000, your loss ratio was 22% ($2,000 / $9,000).

Types of Dividend Plans

There are three basic types of workers compensation dividend plans: flat, variable, and combination.

Flat

A flat dividend plan pays you a specified percentage of your premium for the policy period.5 Your dividend is not affected by your loss experience during that period. For example, suppose you enrolled in a 6% flat dividend plan for the 2019-2020 policy term. Thirty days after your policy has expired your insurer performs an audit. If your earned premium is $10,000, your dividend will be $600. You will receive the dividend even if you incurred substantial losses during the 2019-2020 policy period.

However, your insurer may refuse to enroll you in the dividend plan for the 2020-2021 policy year due to your poor loss experience.

Sliding Scale (Variable)

A sliding scale dividend plan (also called a variable plan) is loss sensitive.6 This means the dividend you receive at the end of a policy year depends on the losses you incur during that year. As the table below demonstrates, the dividend grows as your premium increases and your loss ratio declines. For example, suppose your premium was $13,000 and you didn't incur any losses. Your dividend would be $1,300 (10% of $13,000). If your loss ratio was 35% instead of zero, your dividend would drop to $520 (4% of $13,000).

Annual Earned Premium (this varies from carrier to carrier. This is only for educational purposes)

Loss Ratio            5,000 to 15,000 16,000 to 25,000              26,000 to 35,000               36,000 to 45,000

0 to 10%               10%        12.5%    15%        17 %

11 to 20%            8%          10%        12%        14%

21 to 30%            6 %         7.5%      9%          10%

31 to 40%            4%          5%          6%          7%

41 to 50%            2%          2.5%      3%          3.5%

Over 50%             0%          0%          0%          0%

Combination

Combination plans include elements of both a flat dividend and a sliding scale plan. 7 For instance, an insurer might pay a 10% dividend if your earned premium is at least $5,000, and a 15% dividend if your premium is at least $10,000 (and so on up to a specified premium). Combination plans usually specify a maximum loss ratio. If your loss ratio for the policy period exceeds the maximum, you will not receive a dividend.

Dividends Are Not Guaranteed

Insurers cannot guarantee that a dividend plan will actually pay a dividend. The decision to pay (or not pay) a dividend is made by the insurer's board of directors.8 The board may veto a dividend for reasons such as the insurer's poor financial results. If the board declares a dividend, policyholders generally receive it a few months after their policy has expired.

Retro Plans and Safety Groups

Two alternatives to dividend plans are retro plans and safety groups. Both are effective tools for lowering your cost of workers compensation insurance. A retrospective rating (retro) plan can help you save money on premiums if you have few or no losses. The premium you pay for a policy depends on your current (not historic) loss experience.9

Safety groups pay dividends to members to reward them for good loss experience. A safety group is a program that pools premiums and losses of similar employers.10 If the entire group has a favorable loss experience, each member receives a dividend. The dividend is determined by the loss experience of the group, not individual members.

  This means that there is a smaller chance of you having a claim on several policy's all at once thus reducing their risk, thus lowering your premium

“Financially responsible officer” means a person other than the primary qualifying agent who with the approval of the board assumes personal responsibility for all financial aspects of the business organization.

Financial Responsibility Requirements-Net Worth Reporting

In addition to the above requirements for licensure, applicants for licensure as certified or registered

contractors must submit evidence of financial responsibility, credit, and business reputation. The following

documentation is required to be submitted to the appropriate licensing board.

Construction and Electrical/Alarm System Contracting

(1) A credit report from a nationally recognized credit bureau that does not disclose any unsatisfied

judgments or liens against the applicant;

(2) A financial statement, not more than twelve months old, containing information indicating the current

assets and liabilities, total assets and total liabilities, and total net worth of the applicant; and

(3) Answers to questions concerning financial settlements made by any bonding or surety company upon

work undertaken by the applicant or his firm; unpaid past–due bills or claims for labor, materials, or

services; liens, suits or judgments of record or pending against the applicant or his firm; and other

similar questions concerning the applicant’s background.

The financial stability ground on which the Board will refuse to qualify an applicant is failure to provide

proof of either a financial stability bond or an irrevocable letter of credit which must remain in effect until

the applicant can demonstrate a credit score, FICO derived, of 660 or higher, and must be payable in the

amount of:

✓✓ $20,000 for Division I applicants.

✓✓ $10,000 for Division II applicants.

Fifty percent of the financial stability bond or the letter of credit requirement may be met by completion of

a 14-hour financial responsibility course approved by the Board.

Applicants proposing to engage in contracting as a partnership, corporation, business trust, or other legal

entity other than a sole proprietorship, are required to submit the following:

(1) A comprehensive financial statement reflecting the financial condition of the business organization in

its previous fiscal year prepared within 12 months of the date of filing. The financial statement must

indicate a minimum net worth of $10,000 for an unlimited electrical and alarm contractor and $5,000

for a specialty Contractor.

(2) A report on the business organization from any recognized credit bureau which includes but is not

limited to credit history, ability to be bonded, liens, judgments, suits, bankruptcy, and assignment of

receivers obtained from county, state and federal records. The credit report must be dated within twelve

(12) months of the date of filing the application

(3) Answers to an application questionnaire.

In addition, the following factors will be reviewed by the Board when examining the financial responsibility

of an applicant for licensure as an electrical or alarm system contractor:

1. Evidence that the applicant or any of its corporate officers, shareholders holding 10% or more of the

corporate stock has filed or been party to voluntary or involuntary bankruptcy within the past five

years.

2. The existence within the past five years preceding the application, of a court judgement rendered

against the applicant or any of its corporate officers, or any of its shareholders holding 10% or more

of its corporate stock, based upon the failure of the applicant, its officers or 10% shareholders to pay

their obligations to materialmen, laborers, suppliers or any other parties with whom the applicant has

done business as a contractor.

3. The existence of any liens of record by the U.S. Internal Revenue Service or the State of Florida

Corporate Tax Division against the applicant, its officers, or any of its 10% shareholders.

4. An unfavorable credit history

61G4-15.006 Financial Responsibility and Financial Stability, Grounds for Denial.

(1) The financial responsibility ground on which the Board shall refuse to qualify an applicant is failure to provide a current consumer credit report, as defined in Rule 61G4-12.011, F.A.C., which consumer credit report does not disclose any unsatisfied judgments or liens against the applicant. In addition, there must not be any unsatisfied judgments or liens against the business entity which the applicant previously qualified as a primary qualifier or which the applicant has applied to qualify.

(2) The financial stability ground on which the Board shall refuse to qualify an applicant is failure to provide proof of either a financial stability bond or an irrevocable letter of credit from a bank authorized to do business in the State of Florida. The bond or letter of credit must be in a form acceptable to the Board and must remain in effect until the applicant can demonstrate a credit score, FICO derived, of 660 or higher, and must be payable as provided in Rule 61G4-15.0021, F.A.C., for Financially Responsible Officers in the amount of:

(a) $20,000 for Division I applicants.

(b) $10,000 for Division II applicants.

(3) Fifty percent of the financial stability bond or the letter of credit requirement may be met by completion of a 14-hour financial responsibility course approved by the Board.

(4) An applicant may meet both the financial responsibility and financial stability requirements by providing proof of a current consumer credit report, as defined in Rule 61G4-12.011, F.A.C, with a credit score, FICO derived, of 660 or higher, which consumer credit report does not disclose any unsatisfied judgments or liens against the applicant. In addition, there must not be any unsatisfied judgments or liens against the business entity which the applicant previously qualified as a primary qualifier or which the applicant has applied to qualify.

Specific Authority 489.115(5), (6) FS. Law Implemented 489.115(5), (6) FS. History–New 1-6-80, Amended 5-4-80, Formerly 21E-15.06, 21E-15.006, Amended 10-31-96, 11-13-97, 2-12-08.

61G4-15.0021 Business Organizations.

(1) For purposes of this rule practice as an individual is considered practice as a business organization. After the licensee qualifies one business organization, any request to qualify another business organization is subject to approval by the Board.

(2) If the business organization has a financially responsible officer, the financially responsible officer shall comply with the requirement of subsection 61G4-15.006(1), F.A.C., and shall provide to the Department a bond or irrevocable letter of credit, in the amount of $100,000 payable to the Board for fines and costs.

(3)(a) The applicant seeking to qualify an additional business organization must appear before the Board unless the applicant otherwise qualifies for approval, and:

1. The applicant owns 20% or greater of the proposed business organization; or
2. The applicant demonstrates unequivocally that the applicant has been hired as a W-2 employee of the proposed business where the business is currently qualified or was previously qualified within 90 days of submitting the application.

(b) Any applicant applying to qualify an additional business organization that will result in the applicant qualifying three or more business organizations must appear before the Board.

(4) Qualification of a business organization is only effective as to that business organization; subsidiaries or parents of qualified business organizations must be separately qualified.

Rulemaking Authority 489.108 FS. Law Implemented 455.213, 489.105, 489.115, 489.119, 489.1195, 489.143 FS. History–New 12-6-83, Formerly 21E-15.021, Amended 3-29-88, 8-8-88, 9-24-92, 12-28-92, Formerly 21E-15.0021, Amended 7-18-94, 7-5-95, 11-12-95, 2-6-96, 7-1-96, 9-3-96, 11-27-96, 11-13-97, 9-15-98, 7-7-05, 1-23-06, 10-22-06, 2-12-08, 12-13-09, 2-28-19, 10-2-19.

61G4-15.006 Financial Responsibility and Financial Stability, Grounds for Denial.

(1) The financial responsibility ground on which the Board shall refuse to qualify an applicant is failure to provide a current consumer credit report, as defined in Rule 61G4-12.011, F.A.C., which consumer credit report does not disclose any unsatisfied judgments or liens against the applicant. In addition, there must not be any unsatisfied judgments or liens against the business entity which the applicant previously qualified as a primary qualifier or which the applicant has applied to qualify.

(2) The financial stability ground on which the Board shall refuse to qualify an applicant is failure to provide proof of either a financial stability bond or an irrevocable letter of credit from a bank authorized to do business in the State of Florida. The bond or letter of credit must be in a form acceptable to the Board and must remain in effect until the applicant can demonstrate a credit score, FICO derived, of 660 or higher, and must be payable as provided in Rule 61G4-15.0021, F.A.C., for Financially Responsible Officers in the amount of:

(a) $20,000 for Division I applicants.

(b) $10,000 for Division II applicants.

(3) Fifty percent of the financial stability bond or the letter of credit requirement may be met by completion of a 14-hour financial responsibility course approved by the Board.

(4) An applicant may meet both the financial responsibility and financial stability requirements by providing proof of a current consumer credit report, as defined in Rule 61G4-12.011, F.A.C, with a credit score, FICO derived, of 660 or higher, which consumer credit report does not disclose any unsatisfied judgments or liens against the applicant. In addition, there must not be any unsatisfied judgments or liens against the business entity which the applicant previously qualified as a primary qualifier or which the applicant has applied to qualify.

Specific Authority 489.115(5), (6) FS. Law Implemented 489.115(5), (6) FS. History–New 1-6-80, Amended 5-4-80, Formerly 21E-15.06, 21E-15.006, Amended 10-31-96, 11-13-97, 2-12-08.