Insurance Market Update

Shaun Kelly, Tolman & Wiker, CALSAGA Preferred Broker

Happy New Year! I cannot believe we are already one month into 2023.

Honestly, I think I have discussed the changes in the insurance marketplace several times over the past few months and have almost beaten the topic to death. However, even more changes have arose and I feel it is good information for you to know. Insurance is a large budget expense and you cannot operate without it. 

The start of the year has brought on many surprises and I want to share some of the changes we are experiencing. There is some good news and, of course, some not so good news. Here is a brief update on status of the insurance market:

Workers Compensation: The Workers Compensation market is still competitive, Good News! There are new carriers entering this space and we expect that this will last at least throughout the year. The competitiveness of the market is primarily due to the increases in the minimum wage, increase in payroll and the growth of the Security Industry. Insurance carriers are receiving enough premium and controlling the claims/losses to remain profitable. There is no indication that this will change soon. 

General Liability: How do I start? Almost all insurance carriers are increasing premium rates to offset the claims over the past years. The frequency and severity of claims have caused the underwriting guidelines to change, and not in a good way. This results in the insurance carriers adding “Exclusions” to limit their exposure to potential high hazard claims/losses. The “Exclusions” are different for every insurance carrier and in some cases very restrictive, to a point that you wonder if you have any coverage at all.  In some instances, the new underwriting guidelines have made it very difficult to place coverage at a competitive premium. Some PPO’s have had to evaluate their client mix to meet the underwriting guidelines and keep premium increases at a minimum. We can almost always obtain coverage for any PPO, regardless of contract mix, however the premiums may be too expensive and then we have to determine if maintaining those particular clients makes financial sense.  

Business Auto: The Business Auto insurance has not been profitable for insurance carriers over the years. They have indicated that they are not receiving enough premium to cover their losses. Some carriers have left the market for Business Auto (Specifically CA), leaving fewer carriers that will entertain quoting auto insurance. The cause of their departure is the result of increases in repair costs, higher liability settlements, combined with an increase in the number of claims. With fewer insurance carriers and increasing premium rates, expect your Business Auto renewal premiums to be much higher. To minimize the increase in premiums, always ask if the Business Auto can be written in conjunction with the same insurance carrier that writes the General Liability or Workers Compensation.

Umbrella: Same as above, settlements for large losses are significantly increasing. If General Liability and Auto Liability premiums are increasing, the Umbrella premiums will react the same. Due to the claims triggering the Umbrella, it is to a point that the Umbrella market is reducing the amount of Umbrella limits they will offer. It was standard to obtain quotes for $10M with no problem at all. Now, we may be able to obtain limits of $5M and then the premiums for limits over $5M are expensive and may not provide the same coverage as the underlying General Liability policy. Then there would be “Gaps” in coverage for the additional Umbrella policy. 

Employment Practices Liability: Remains stable, as long as there are no losses. 

At the end of the day, please be proactive and complete applications early. And, review them with your Broker before allowing them to be submitted to the insurance carriers for quotes. If you can negotiate favorable terms early, that will eliminate a lot of stress as the renewal date approaches. We are receiving calls from PPO’s at the last minute asking for help to place insurance coverage, because their current carriers have either non-renewed and/or they cannot find replacement coverage to include all of their operations. This could be due to several reasons: losses over the past 5 years, types of client mix (Schools, retail, executive protection, crowd control, residential….), additional exclusions added to the General Liability policy and significant increase in premiums. 

We wish you the best in 2023 and take care.

Shaun Kelly joined Tolman & Wiker Insurance Services in 2005.  He specializes in all lines of property and casualty insurance for industries including contract security firms, agriculture, construction, oil and gas. Shaun received a BS in Business Administration with a major in Finance from California State University in Fresno, California. He is an active member of several industry associations, including the Association CALSAGA, the Kern County Builders Exchange and the Independent Insurance Agents of Kern County. Shaun can be reached at 661-616-4700 or skelly@tolmanandwiker.com.

IS INFLATION TO BLAME FOR RISING SECURITY FIRM INSURANCE PREMIUMS?

Tory Brownyard, Brownyard Group

In California gas prices have risen above five dollars a gallon. Food banks are experiencing extraordinary demand. Mortgage rates, housing prices, residential rent and even home repair and replacement costs are soaring. For many Americans, this historic rate of inflation has become real, unprecedented and problematic. As consumers feel the brunt of inflation, its impact also spans various industries throughout the U.S. For the private security insurance industry, the market continues to harden, due to both inflation and other factors.  

While a major contributor, however, inflation is just one factor making it more challenging for security firms to secure the insurance they need to mitigate their risk exposure, and of course, meet required insurance obligations featured in every service contract.

Extreme Loss and a Rise in Crime

Inflation aside, many insurance carriers assess the risk and associated cost of premiums based on the history of loss in the industry as well as the individual organization’s claims history and operational practices.

One tragic example of an operational impact includes the May 2022 Securitas Security Services $517.5 million settlement paid to the victims of the June 24, 2021 partial collapse of Champlain Towers in Miami. Among the determining factors for Securitas paying nearly half of the more than $1 billion settlement included the failure of the security guard on duty in activating the building’s alarm system to signal an emergency evacuation. In a deposition, the company’s manager acknowledged a lack of training contributed to the system not being used despite the guard on duty calling 911 approximately 10 minutes before the structure failed, killing 98 people. 

Multi-million-dollar settlements like that of Securitas will have major ripple effects across the security industry for years to come.

Other examples include the recent spike in active shooter situations, including the devastating incident in Uvalde, TX and the Fourth of July shooting in Highland Park, IL. In addition to the tragic loss of life, more than 300 mass shootings have occurred by the mid-point of the year, putting 2022 on track to meet or surpass the record 700 shootings in 2021 or the previous record of 611 shootings in 2020. In many, but not all such mass shooting incidents, private security firms face the public’s wrath, legal inquiries and countless lawsuits. The resulting litigation often produces what many term nuclear verdicts handed down by the courts, loosely defined as exceptionally high jury awards that exceed what most would consider reasonable.

Large jury awards against security firms can often be traced back to failures in training, client screening, contract language and communication. So, while inflation is certainly a factor, there are other circumstances within the control of the industry itself to limit its own risk and exposure.

Managing Risk

Steps security firms can take to reduce their exposure and slow or mitigate the rise in their premiums include:

•         Carefully selecting clients: As the shootings in Uvalde, Buffalo, Highland Park and Biloxi — among others — have taught us, active shooter or violent situations can occur anywhere, among anyone at any time. However, when it comes to underwriting the security industry, insurers will often look closely at the types of clients the firm takes on. Those who take on high-risk clients, those with more public exposure such as bars and nightclubs, shopping malls and sport or concert venues, will often give insurers pause. If an insurer does cover a security firm with such clients, the premium is sure to be much higher than those who take on low-risk clients. Low-risk clients are those with less public exposure, including warehouses, office buildings and industrial type clients.
•         Mitigating liability: To minimize risks, a security firm should always speak with their insurance partner before taking on a new contract. The insurance partner can help advise on what to avoid and can ensure proper coverage is obtained to best meet the firm’s needs and client types. Firms should also consider their policy limits when taking on new clients and make necessary adjustments in consultation with their agent or broker. High-risk clients can often demand higher limits of liability, and excess and umbrella policies can provide needed coverage beyond the scope of the original policy.
•         Reading the fine print: Security firms should also consider contractual language carefully before taking on new clients. Ensuring their guards are only liable for their own negligence and wrong doing is critical. Also, it is recommended that clear and concise expectations for all parties are written into the contract. This can help avoid costly lawsuits and needless blame.
•         Prioritizing training and communication: California state law requires 32 hours of training to acquire a security license, and eight hours of training each subsequent year to maintain the license. While this training provides guards with the tools and knowledge to perform their duties to industry standards, additional training for de-escalation, the dangers of restraints, active shooter or other situations is also recommended. Regularly revisiting and updating such training is vitally important. However, even the best training can fall short in an emergency. Clear communication protocols for security guards to seek and receive updated instructions can make the difference between managing a crisis or facing unfortunate and avoidable consequences. When all else fails, security guards should be able to rely on universally understood and transparent orders and expectations established within the signed contract.

Staffing and resource limitations among local law enforcement along with rising crime in certain localities will continue to drive the need for more private security by event and property managers, among others. Increased demand, paired with higher risk security situations, directly affects the rise in insurance premiums for private security firms. This rise of risk and premiums will continue to contribute to insurers being much more selective in the types of security firms they are willing to cover. Working with their insurance agents and brokers, security firm leaders can play an active role in minimizing their risk to avoid major losses and secure reasonable coverage to allow them to keep both their clients and their businesses safe.

Tory Brownyard, CPCU, is president of Brownyard Group, an insurance program administrator with specialty programs for select industry groups. In addition to his responsibilities as president, he currently spearheads the Brownguard® security guard insurance program.