There is no specific SIC or NAICS code for pawnbrokers. They are included under NAICS 522298, All Other Nondepository Credit Intermediation, and may actually make up the vast majority of this class. There are more than 5,400 such enterprises across the United States, most of which are small. Thirty-nine are considered middle market and only seven are considered national accounts. This market varies significantly by region. There are 2,204 such establishments in the Southeast and 1,635 in the Southwest. One reason for the regional differences is the interest rate that can be charged in each state. Northern states tend to limit such interest rates to the 5% range, while rates in the southern states can exceed 25%! .

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Pawnbrokers present significant property and crime exposures. Property is a combination of items such as gold, jewelry, furs and other property usually subject to theft limitations in most commercial property coverage forms. Property insurance valuation is also a problem because everything is used merchandise. Replacement cost valuation could present a moral hazard in some cases, but actual cash value undervalues certain types of merchandise in others. Crime exposures, especially employee dishonesty and money and securities, are of particular concern because of large amounts of cash on the premises. Clients expect to be paid in cash and clients often pay loan charges in cash.

Pawnbrokers also have a bailee exposure for the collateral they hold. Their exact responsibility for that collateral is stated on the client’s pawn ticket. Collateral must be insured to meet at least the pawnbroker's contractual obligation.

Here is a possible claim scenario:

Mabel and John own Interesting Times, LLC. The pawn ticket value of collateral held is $200,000. The terms of the pawn ticket state that they must insure the collateral against named perils and theft for the value indicated on the pawn ticket. The replacement cost value of the collateral is $1,000,000 but the actual cash value is $400,000. The replacement cost value of merchandise held for sale is $500,000. However, its actual cash value is $200,000.

Their insurance agent Sam doesn’t fully understand this business so he develops and markets the account as a used merchandise store. He encourages Mabel and John to purchase a $200,000 limit on an actual cash value basis for special causes of loss. The price is right until a major break-in occurs. The insurance carrier denies coverage on all collateral property because it is property of others at the time of loss and is excluded. The jewelry and furs each had an actual cash value of $50,000 but recovery was limited to the $2,500 theft limitations. The vault contained $25,000 in cash but Sam failed to recommend any money and securities coverage.

This loss is complicated further when the insurance company refuses to pay anything because Sam misrepresented a financial institution as a used merchandise store.

The insurance market for pawnbrokers is limited with only a few insurance companies interested in the class. The advantage for the markets that do write this class is that pricing has remained fairly constant throughout the soft market. However, there is a problem, according to David Price, executive vice president and chief underwriting officer at Burns & Wilcox. “Few agents are able to write pawn shops correctly, causing this to be a class that is underserved. As a result, this class presents agents with a lot of opportunities.”

One company experienced in writing pawnbrokers is Century Insurance Group. Tom Rossi, vice president underwriting at Century Insurance Group, explains that Century's program is meant for risks that loan money on articles/personal property left as security and that it entertains both single and multiple location risks.

Jon Walker, president of Union Life & Casualty Insurance explains that Northland Insurance Company is a very active market and states that they write both pawnshops and other similar risks.

Some markets write coverage on an admitted basis while others do so on a non-admitted basis. The approach used depends on the coverage, location and type of exposure.

Our experts agree that the coverages most needed are property and general liability. Both are available without any particular geographic concerns except for the obvious windstorm considerations that are typical of any property risk.

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