LOOKING FORWARD: WHAT’S DRIVING THE HARD MARKET INTO 2022
The insurance industry is now experiencing a hard market that experts predict will continue well into 2022. In practical terms, this means security firms, among other businesses and industries, will continue to see rising insurance premiums and may have difficulty obtaining coverage.
A range of factors have contributed to the hardening insurance market. For security firms planning for the year ahead, understanding the drivers and knowing the risks that concern insurers may help soften the blow and provide better coverage options in the shifting economy.
What’s driving the hard market
In a hard market, insurance rates rise as insurers become more risk averse. Some insurers institute stricter underwriting parameters, while others may leave certain markets entirely. An example of this can be found in California where, years ago, many insurers reduced the amount of earthquake coverage they wrote while others stopped providing earthquake insurance entirely.
For security firms in the U.S., the pandemic, economic uncertainty, rising crime rates and civil unrest in 2020 and 2021 all contributed to the hardening of the security insurance market. One of the primary drivers is large settlements awarded against guard firms. Such settlements, coupled with the risk of active shooter claims, are increasing insurance rates for security firms across the board.
The security industry saw a respite from active shooter situations throughout 2020 and 2021 due to nationwide lockdowns. However, as lockdowns ended, active shooter concerns began to rise again. For instance, a workplace shooting at a Northern California rail yard in May marked the third such incident in less than two months. In many of these situations, security professionals are often the first line of defense. As such, they face considerable liability.
Another factor driving increased insurance premiums for guard firms is the ongoing trend of asking guards to perform work that is not only outside of their regular duties, but also exposes them to increased risk. For years security guards have been asked to provide additional services such as hospital patient transfer and even janitorial services. The pandemic exacerbated this trend as guards found themselves performing temperature, mask, and vaccination checks. In places such as Los Angeles County, where vaccine mandates are strongly enforced, guards will likely continue to be asked to provide additional services for the foreseeable future.
If these services are not included in a security firm’s contract and the guard, or those involved with the guard’s actions, are in any way harmed, lack of insurance coverage for those services could expose the firm to considerable liability, as some insurance policies will exclude operations not disclosed to the insurance company.
Additional factors contributing to the hard market include a global increase in the cost of doing business and late claims reporting. The later a claim is reported, the more time sensitive it becomes and the more costly it is to settle.
Choosing clients carefully
One of the biggest concerns for insurers when it comes to underwriting the security industry are the types of clients taken on by the firm. Security firms that take on clients considered high-risk are seen as having an increased exposure. Clients that fall into the high-risk category are typically those with more public exposure, including sport and concerts venues, shopping malls, and clients that are prone to criminal activity, such as certain medical dispensaries, subsidized housing and payday lenders.
In addition to paying higher insurance rates, security firms that cater to high-risk clientele might also find it more difficult to get coverage. Some markets are also reducing coverage and introducing exclusions for certain client types such as low-income housing, special events or places serving liquor.
While the hard market presents challenges to finding affordable and consistent insurance coverage, security firms can take steps to lower their risk exposure. Doing so can contribute to either better costs or access to limited coverage.
What you can do to soften the blow
Poor contractual language can open the door to security firms assuming responsibility — and potential liability — for actions over which they have no control. Reviewing contracts to ensure they are clear and transparent can help firms ensure they only accept liability for their own wrongdoing or negligence. Security firms should provide clients with contract language that has been both drafted and approved by the firm’s attorney, as well as reviewed by their insurance provider. Doing so can limit liability when a claim is made and help control the cost of those claims, thus making those security firms more appealing to insurers.
Another way security firms can reduce the impact of a hard market is by reporting incidents as soon as they happen, even if the security officer is not considered responsible for the incident in question. Through timely reporting, security firms can provide the insurance company with the necessary information to get ahead of the claim and lessen the potential liability from long-tail claims (those that typically carry a long settlement period, high settlement amounts and a lengthy court case) and put themselves in a more defensible position.
Finally, serving clients with lower risk profiles, such as office buildings, government contracts and industrial clients will lower a security firm’s risk profile. In most cases, insurers view such low risk more favorably because they tend to have a better loss experience.
As the economy shifts and the need for private security expands, it is more important than ever for security firms to better understand and mitigate liability risks where they can. To accomplish this goal, security firms should work with their insurance partner to better understand their coverage and their potential exposure. This can find greater stability during uncertain times.
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.