Security Systems
Security firms must keep up with the latest technology or be left behind. Robots, drones and motion detectors are just some of the tools being used in advanced security systems. While this technology will not replace all guards it can reduce personnel costs without impacting the security of the client. This reduction in human guards can reduce the workers compensation and liability exposures significantly.
The market for insurance coverage is stable even though two major players just recently merged. The contributors to this issue do not anticipate any significant increases or decreases in pricing throughout 2016. Because the particular coverage needs vary by security firm, it is important that an agent with a security-related client work with a program manager because of the significant differences between the coverage provided by the current market.
Focus On The Security Industry
Major changes create opportunities for agents
By Lori Widmer
Home-grown terrorism, security breaches into organizations such as Yahoo!, LinkedIn, and even the Democratic National Committee … the security industry has become a rapidly changing marketplace. With digital and physical security being inextricably linked, as businesses grapple with myriad security threats, they are running to keep pace with the changes. According to the 2015 Gartner report on cyber security, new business designs are being created out of the intertwining of the digital and physical security realms.
Because of this metamorphosis, there is a noticeable shift in the presence and use of automation, says Torrence Brownyard, president of Brownyard Group, Bay Shore, New York. Torrence sees a move from physical security to technology. "Robots are providing audio and video surveillance with central station command with human oversight," he says. "We generally see it as a CCTV monitoring situation."
It's also an area he sees as a potential exposure for clients. "It's important for guard firms to point out to their clients that obviously a robot isn't going to provide the same level of security that a physical person will. It's important for the guard firm to make it clear to its clients what the limitations of that are."
Current market trends
Another area of automation is drones.Taylor Brownyard Guercio, vice president of Brownyard Programs, also in Bay Shore (not affiliated with Brownyard Group), says some businesses attempt to use drones in place of guards. "Because we realize that some of our insureds are dabbling in this area and we're not aware of it, we're now excluding un-manned aircraft drones in our policies."
Another area of security that's seeing change is alarms and security technology. Blair Brownyard, also of Brownyard Programs, says technology is driving the market, and companies are turning to technology to solve a variety of bottom-line issues. "With workers comp and payroll taxes as they are, it's more cost effective for companies[to use advanced security systems]."
The security system market, says Blair, has seen a significant boost thanks to residential interactive systems. "Changes in the industry mean people can use these alarm systems in many more ways than they used to."
Still, the integration of technology with physical security remains a top trend. Karen Izzo, president of Izzo Insurance Services, Bloomingdale, Illinois, says motion detection cameras are becoming part of the physical security process. "Motion detection cameras are being used to provide security in larger areas with a limited number of guards," she says. "Cameras detect motion and send video to the guard's phone on site. Several cameras can be used with the physical presence of only one or two guards to protect large sites."
In the physical security sector, Torrence Brownyard sees an increase in liability in the healthcare arena. "Security work in hospitals can subject guard firms to significant liability exposures if they are not adequately prepared for that exposure," he says. Budget cuts, he notes, are forcing hospitals to forgo police presence in lieu of more affordable private security. "It opens them up to tremendous exposures. We've seen serious claims from both a GL and WC standpoint."
Blair says physical security has seen its share of change. "This year there's been an unprecedented number of mergers within the marketplace. There have been five big players, but with the merger of Allied Barton and Universal Services of America, the market is down to the big four. None of those companies has traditionally handled much in the way of electronic security, but some of them are now aggressively moving into it. And many of the smaller security guard companies are starting to do this crossover between electronic and physical guard."
Another area of concern is terrorism. Because of mass shootings in malls, nightclubs, and other venues, Bruce Brownyard of Brownyard Programs says security companies need to consider that they can be involved in a terrorist situation in any part of the country. Consequently, they should make sure that their liability policies include terrorism coverage.
Guercio thinks such incidents will change the hiring process significantly. "We might see an increase in the level of background screening and hiring processes."
Market considerations
Given some of the trends that are challenging the market, Bruce says the market is fairly stable with its carrier now providing capacity up to $35 million. "Premiums are pretty much static," he says. "We'd gone through a number of years of significant increases, and since 2015, prices have stabilized. They've continued without any significant increases or decreases throughout 2016."
Karen sees the same leveling off of premiums. "Premiums have remained stable. Some carriers have exited with new carriers replacing them," she says.
Torrence says he's seen little market contraction except for firms with loss experience or those servicing higher profile clients, which he says subjects them to a limited market, rate increases, and possible exclusions. He has seen some exclusions appear in the general market. "We've seen a few new exclusions added on: Some carriers are adding a punitive damages exclusion, and third-party-over exclusions are becoming more frequent."
Taylor says: "School security is a big problem. Schools are looking at armed security guards. That causes a concern for most carriers. They don't want a school, for one, and on top of that, they don't want the armed exposure at schools."
Special event security is another area that carriers don't want to go near, particularly because of the terrorism exposure, she adds.
Perhaps some of the latest technology will put insurers at ease. Blair says new two-way communication systems are a crossover between security systems and alarm systems. The systems, he says, are programmed to lock down at the sound of a gunshot or other specified event, and will alert the authorities.
Recommendations
Despite the drawbacks, the experts say that agents can grow a lucrative book of business in the security marketplace. "If brokers are willing to do their homework, read and analyze coverage forms, and learn about exposures specific to the class of business, they can be successful," Karen says.
She adds that contracts are a must-have for security firms. She advises that agents consult with their security company clients. "Security companies should have a good standard contract they use for most clients. The contract should be written or reviewed by an attorney who is experienced in defending claims against security companies. If the security company's standard contract cannot be used, the contract presented to the security company by the client also should be reviewed by an experienced security defense attorney."
Torrence recommends that agents align themselves with a strong program manager. "A good program manager can point out the differences in the various policy forms, as they vary from company to company. Also, maintain frequent contact with your guard firms so you become aware of what's going on with each firm."
Another recommendation from Torrence: "Pay attention to the claims process. It's important for the broker to handle the claim properly and make sure he or she is working with a company with a strong claims presence."
For more information:
Brownyard Group www.brownyard.com
Brownyard Programs www.brownyardprograms.com
Izzo Insurance Services www.izzoinsurance.com
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