INSURANCE IMPLICATIONS OF RISKY CONTRACTS
The current economic situation has given rise to an increased number of security companies entertaining contracts that they would normally look to avoid. The continued lack of new work, reduced hours at current job sites and slow-paying customers are forcing security company owners to explore additional sources of revenue in order to keep their companies afloat. While I’m certainly not going to suggest that any firm allows themselves to go “belly up”, there are factors that need to be weighed when taking on additional (and potentially riskier) contracts.
First and foremost, make certain to verify that your insurance policy does not specifically exclude coverage for the type of work being entertained. Most insurance policies for security companies have exclusions that deny the company coverage in occasions where certain work is being performed. For instance, the most prevalent exclusion on policies is for “Bars, Nightclubs, Taverns & Similar Establishments”. It is my experience that most company owners are aware of this exclusion and will look to avoid these contracts if the exclusion is found on their policy. However, there may be additional exclusions that you should be aware of before entering into a work agreement. If you are unsure, my advice in this situation is to speak with your insurance professional with regards to the coverage on your policy. They will be well versed in the exclusions and should be able to advise if the contract you are entertaining would be covered in the event of a claim.
The second, and less obvious factor that should be considered is your overall client portfolio. With respects to an insurance carrier, certain operations performed by a security contractor are considered riskier than others. These operations may not be explicitly excluded by your policy but could have a negative impact on your underwriting at the time of renewal. This negative impact could come in the form of increased premiums or non-renewal on the part of the carrier. Additionally, and equally as important could be the deterioration of your loss ratio. With riskier operations certainly comes the increased exposure to claims. As we all know, when claims start to occur an insurance carrier will take a very hard look at the policyholder at the time of renewal to determine their profitability and pricing strategy for the coming year. Again, I stress that engaging your insurance broker in this situation is extremely important and beneficial in both the short & long term. Your broker will be able to offer insight as to what contracts might be best to avoid if possible so that your company maintains a “clean” profile as viewed by an insurance carrier.
At the end of the day, neither your insurance broker nor your carrier is on the frontlines working to keep their security company in business. It is up to each individual company owner to decide what risks they are willing to take and accept the potential consequences of those choices. However, by enlisting the expertise of your insurance professional, you will be able to make the most informed decision possible.
Josh Ring, CIC is the President of El Dorado Insurance Agency, Inc., a family-owned business specializing in custom insurance programs for the Security Industry since 1968. Josh oversees the agency and its customers, along with coordinating the development of new insurance products and programs. Josh graduated from The University of Texas McCombs School of Business with academic honors. He also holds a Certified Insurance Counselor (CIC) designation. Josh lives in Katy, Texas with his wife and two children. In his spare time, Josh loves to run, travel, and spend time with his family.