What is an Information Purchaser Bond?
Information purchaser license bonds are a subset of the broader license bond category that must be filed with the government agency (city, county, or state) responsible for regulating security of personal information within the information purchaser’s jurisdiction as a condition of licensure or as a precursor to a licensing agreement. Michigan and North Carolina are currently the only states with such a surety bond requirement.
Information purchaser bonds must be issued by insurance carriers admitted in the state where the government agency requiring the bond resides. The insurance carrier issuing any surety bond, such as an information purchaser bond, will also be referred to as the “surety company” or the “bond company”. Information purchaser license bonds refer to the information purchaser as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Why is an information purchaser bond required?
Information purchasers are required to purchase license bonds by state and local statutes to protect the government agency by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from an information purchaser breaking the purchase agreement. The surety company provides the government a guarantee (the surety bond) that the persons whose personal information is included on any list of information sold by the government to an information purchaser will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the safeguarding of the information purchased up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, information purchasers are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond.
Information purchaser bond violations triggering a bond payout may include the purchaser using purchased information outside of the specifications of the purchase agreement or failure to pay the Obligee for all fees due for information purchased.
How much does an information purchaser bond cost?
Information purchaser bonds generally cost between 1.5% and 8% of the bond limit.
Example: $10,000 Information Purchaser Bond Cost
|Credit Score||Premium Rate||Bond Cost|
|800 or above||1.5%||$150|
|680 - 799||2.0%||$200|
|650 - 679||2.5%||$250|
|600 - 649||5.0%||$500|
The actual cost of a specific information purchaser license bond can vary widely depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form and the information purchaser’s experience and creditworthiness. Information purchaser bonds required by a local government (city or county) tend to have the lowest cost, while state requirements have potentially higher costs and/or more strict underwriting requirements.
Is a Credit Check Required for Information Purchaser Bonds?
Credit checks are required for information purchaser bonds.
How does the wording in the bond form impact the cost of an information purchaser bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and information purchaser(principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the information purchaser via higher bond premiums, stricter underwriting or collateral. The primary text to consider in an information purchaser license bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 information purchaser bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Information purchaser bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the information purchaser and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the information purchaser failing to pay premiums due, claim payouts, or material changes in the information purchaser’s credit score. Information purchaser bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Information purchaser bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.