NAVIGATING THE HARD INSURANCE MARKET: STRATEGIES FOR PRIVATE SECURITY FIRMS
Tory Brownyard, Brownyard Group
As insurers look to reduce risk and losses, businesses in areas that are deemed high-risk, such as those in private security, face fewer options and higher rates. Yet while higher premiums are difficult for security firms to navigate, they pale in comparison to the enormous financial and reputational damage inadequate coverage may cause. For private security firms, there is no end in sight as these conditions, which started around 2019 and were accompanied by higher premiums and stricter underwriting, are expected to continue well into 2025.
Fortunately, there are strategies that security firm owners and operators can use to ensure their firm remains appealing for insurance companies by understanding their risk exposures and addressing them.
Why so hard?
Past hard markets have lasted three years on average, making the current hard market unusual. The hard market has persisted for as long as it has for multiple reasons, including two that impact private security firms the most.
First, firms face increasing risks—and premiums—due to the rise of so-called “nuclear verdicts,” court decisions that exceed $10 million in damages for the claimant. In 2023, nuclear verdicts cost the insurance industry a staggering $14.5 billion, and security firms are not immune.
Second, a continued increase in active shooter claims nationwide severely impacts security firms’ risk profiles. From 2019 to 2023, active shooter events increased by 89% over the prior five-year period, according to FBI data. These events bring unique challenges to firms, because if a firm’s officers are within proximity of an active shooter, a lawsuit for failure to provide adequate security will surely follow. Such lawsuits will almost always consume a firm’s total liability policy limits, which is why some insurers may deny coverage to certain firms.
Pitfalls to Steer Clear Of
Given the economic pressures of the hard market, private security firms sometimes look to cut costs by shopping for policies on non-admitted markets. Doing so, however, can create far more problems than it solves.
Non-admitted insurers are not state regulated and do not pay into the state guarantee fund. Sometimes, firms may be forced to work with non-admitted insurers if they cover only high-risk clients, such as bars or fast-food restaurants. However, non-admitted insurers do not offer protection for firms in the event of an insurance bankruptcy, which is a major downside.
Additionally, some non-admitted insurers provide limited coverage, which puts a firm’s professionals at risk and potentially impacts their profitability, too.
Assault and battery liability provides a good example for how non-admitted insurance can impact a firm’s profitability and put professionals at risk. Assault and battery liability protects firms and their employees from claims that may arise regarding the use of physical force. The industry standard is for companies to require their security firms to carry at least $1 million in assault and battery coverage as part of their general liability insurance. If a firm contracts with a non-admitted insurer and carries a sub-limit below $1 million, it will lose existing contracts and struggle to compete for new business from low-risk (and highly desired) clients in the future. Even worse, if a non-admitted insurer eliminates assault and battery coverage altogether, a firm and its employees are unprotected from related lawsuits entirely.
How to improve your firm’s insurability
While the hard market may be out of any owner or operator’s control, there are ways to enhance your firm’s appeal to insurers—without moving to the non-admitted market with carriers offering inadequate coverage.
Make a strong impression.
When reviewing a business for insurability, many organizations rely heavily on loss experience. A clean loss run spanning at least 4 years years can make a favorable impression. However, repeated claims in specific areas can raise red flags, likely resulting in a declination. For example:
- A loss record showing a history of drowsy driving claims could indicate problems with long work hours or poor training and supervision.
- A firm with multiple reports of fights between security officers and customers could raise concerns about substandard employee screening processes.
Choose your firm’s clients wisely.
A firm with lower-risk clients, such as those that secure Class A or high-end office buildings, technology campuses, estates or government entities, could be more attractive to insurers. Those that cater to higher-risk clients—such as shopping malls, arenas and other special event spaces where large amounts of people gather—will likely be less attractive.
Limit your liability contractually.
Firms that have partnered with an attorney to develop their own contracts with specific language limiting their liability will be more attractive to insurers than firms that accept the terms and conditions spelled out in their clients’ contracts or use generic contract language.
Train and hire responsibly.
The good news for California security firms is that the state already has some of the most stringent requirements in the nation when it comes to security officer screening, training and supervision. Insurers will prioritize partnering with firms that meet those strict standards. Firms that exceed California requirements are likely to make an even better impression on insurers.
Retain your security professionals.
Firms with high turnover rates are a red flag to insurers, as it calls into question the firm’s ability to cultivate a stable workforce. Additionally, insurers will be more likely to cover firms that offer their security professionals average or above-average salaries versus those who pay minimum wage.
Don’t forget about auto.
While much of the advice above is geared toward general liability insurance, commercial auto is another pain point many private security firms share. Insurers will prioritize partnering with firms that follow a few simple best practices and maintain clean loss records. In particular, insurers will look for written driver safety policies, thorough training for new hires, refresher training for existing staff, and the use of on-board telematics, video cameras and other proven fleet management safety technologies.
Keep your firm insured
Do not let the challenges of a hard insurance market keep you from getting the coverage your firm—and its officers—need to stay safe. By maintaining a clean loss record, avoiding the pitfalls of non-admitted insurers and adopting proven third-party risk transfer strategies, firms can take their own steps to protect their businesses to keep their premium increases to a minimum regardless of market conditions.
Tory Brownyard is president of Brownyard Group (www.brownyard.com), a program administrator that pioneered liability insurance for security officer firms more than 70 years ago.