FIVE QUESTIONS INSURANCE UNDERWRITERS ASK ABOUT SECURITY COMPANIES
Whether we’re insuring a family mini-van or an oil company operating in a hostile environment, insurance underwriters carefully evaluate the risks and exposures facing a particular person or company. In commercial underwriting, we consider a company’s loss experience, risk management practices and other factors in determining whether or not we can accept the risk and what kind of coverage it requires.
For the security industry, there are several questions we ask ourselves about a company and its application. Here, I review some of these questions and try to shine a light on insurance coverage for security firms based on my experience as an insurance underwriter for security risks.
What industries does the firm work with?
Many security firms specialize in serving one industry or environment, whether that’s government contracts, retail stores or large events. An application for insurance will often ask detailed questions on this topic.
This helps underwriters determine if a firm is a “low-profile” or “high-profile” risk. A high-profile security risk assigns officers to posts that have a great deal of exposure to the public, large crowds or criminal activity. Unfortunately, there is another factor we must take into consideration when looking at industries served by a firm: active shooter risk. Some environments have been susceptible to active shooter incidents, such as hospitals and churches.
Low-profile risks, like those serving industrial warehouses, government contracts and office buildings, tend to go through the underwriting process quickly. Other factors determine how the account may be priced.
Is the work armed or unarmed?
The debate over staffing armed guards in schools has been playing out in the media over the past several years. As you well know, the question of providing armed guards to a particular post requires a complicated answer. That is why this is an important question to many underwriters. In my work, I consider whether or not a particular environment could necessitate an armed officer. For example, some government contracts may require and warrant staffing armed security officers.
We will also consider the person behind the firearm. From an underwriting perspective, an ideal armed security officer has been properly screened, carries the appropriate licenses and has extensive firearms training. For that reason, we often consider former or off-duty law enforcement professionals to be qualified armed security professionals. They are more likely to have extensive training and experience handling firearms.
Who does the firm hire and how are they trained?
Rules about hiring and training security officers vary from state to state. Of course, an insurance underwriter will expect firms applying for coverage to follow state rules and regulations. We also expect firms to subject potential hires to the usual criminal background check and to ensure they are permitted to carry a firearm, if applicable. However, we may also consider whether or not the company tends to hire officers with a background appropriate for their posts. As mentioned above, from an underwriting perspective, people with law enforcement experience seem like the safest bet for armed posts.
We also take pay scale into account. Are most of the guards earning around minimum wage? Are they towards the top of the industry pay scale? The answers to these questions can tell underwriters a story about the experience level of the firm’s workforce. Though some officers will be entry-level, we would like to see these early-career employees balanced with experienced, trained professionals.
Underwriters may also ask about and consider the type of training provided to security officers. We will consider if it prepares them for the settings in which they work. An officer posted to a hospital emergency room may be served by training that can help them deescalate fights in that sort of environment. In general, underwriters like to see situational training to hone skills needed for different environments.
Lately, we have also been reviewing active shooter trainings. A well-planned active shooter training program and response protocol can help a security company minimize liability in the event of an active shooter claim.
What is the “loss experience” of the risk?
When we talk about a firm’s “loss experience,” we are talking about the number of claims a security firm has incurred in recent years and the nature of those claims. Overall, the security industry has an infrequent but severe loss experience; that is, security firms are not often involved in incidents or litigation that cause an insurance claim, but when they are, those claims involve large settlements or expenses.
Every firm will have a large claim from time to time, but low-profile firms have low claims frequency. A firm with three or more losses a year may have a problem with its screening and training practices. This is particularly true if those losses result from actions like a security officer assaulting someone. When such patterns emerge, an insurer is more likely to decline to write an account.
What do their contracts look like?
Insurance underwriters are not lawyers, so we cannot provide advice on the finer details of contract law. However, contracts transfer a great deal of liability, so we do often discuss the implications of certain types of contract language with our insureds and potential clients. Some security services contracts will transfer all liability to the security firm—which puts the firm in a difficult position. We prefer language that will limit the insured’s liability to their own negligence and not assume liability for their client’s negligence. It is also important that the contract clearly states the duties and responsibilities of the security officers.
Underwriting guidelines differ from insurer to insurer, as every insurer has a slightly different risk appetite. In general, admitted insurers have less risk appetite, while insurers on the non-admitted market—whose customers are not subject to the protection of state regulations—are able to accept riskier accounts.
If you have further questions about how your insurance policy is underwritten and priced, your insurance broker is a great resource.
Tory Brownyard, CPCU, is president of Brownyard Group (www.brownyard.com), 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. Tory is a highly-regarded subject matter expert in the field of Security insurance and has contributed to industry publications such as Security Magazine and has been featured regularly in leading insurance publications. He can be contacted atTBrownyard@brownyard.com.