A SHIELD FOR SECURITY GUARDS
INDEPENDENT INSURANCE agents nationwide continue to look for alternative sources of revenue. The Mechanic Group is an agency that 12 years ago looked to "niche marketing" as a way to establish itself. Now, our agency owes much of its success to serving a specific purpose - providing a measure of security to the security industry.
Irv Mechanic, president of Mechanic & Associates, has written life and health insurance and offered retirement consulting for police labor unions for the past 30 years. In doing so, Irv met many police officers who after retirement from law enforcement formed security companies or private investigation firms, or became security consultants. These clients urged him to develop a program for security firms that would provide the liability coverage they needed at affordable rates. Irv responded by forming the Mechanic Group Inc. to exclusively serve security-guard, investigation and alarm firms. Today, the Mechanic Group and its parent company employ 22 people. Four of our seven producers write more than 1,000 security-industry accounts.
Our clients run the gamut in terms of size, make-up and areas of specialization. Security guard firms with large direct labor account for a majority of the premium generated while private-investigation and alarm companies contribute most of the policy count.
All our programs designed for security, investigation and alarm firms allow for accounts of all types and sizes. Our minimum premium is $1,000, and our largest account generates $1,550,000 in annual premium. Unique pricing models are a big key to our success.
We have four main ways of prospecting:
- Trade association networking, including attending associations' annual seminars. Cultivating strategic alliances, including with consulting firms working in the security industry.
- Good old-fashioned cold calling. We have an in-house telemarketing facility that operates continuously.
- Referrals from existing clients.
Underwriting:
We select our markets according to the underwriting characteristics of an account. Depending on the type of coverage requested, the primary carriers we approach include Great American Insurance Co., Kemper Insurance Cos., Western World Insurance Group and Hartford Insurance Group. We have binding authority with all the aforementioned companies. We also have formed strategic relationships with Victor O. Schinnerer and S.H. Smith and Co. Inc., insurance intermediaries that also have programs for security-guard and alarm firms.
Before we prepare submissions for in-house underwriting, we require producers to complete a "selection score sheet' -a questionnaire that helps us gather information about the applicant's loss history. Using the score sheet and a point system, we determine the risk's loss ratio. A high ratio indicates that certain insurers are unlikely to accept the risk. Some insurers also shy away from security firms with contracts for low-income housing facilities, fast-food restaurants, malls, theatres and video arcades because of poor claims experience with those types of insureds, so we sometimes need to find acceptable alternatives for such clients. Although we place most of our insureds' business with admitted carriers, we occasionally Write coverage with a financially stable nonadmitted company when doing so is warranted.
In most cases, the underwriting process is straightforward. We have separate industry-specific applications for security-guard and investigation firms and for alarm companies. Each application requests general information about the insured company, the owner's/operator's business background, hiring procedures, employees' driving records, pre-employment screening practices, risk-management procedures, training programs and the types of contracts the insured has with its clients. The application also asks for a description of the services provided and how much of the insured's payroll is devoted to each classification (security guard, investigation, alarm service). For a security-guard firm, guard billable hours and receipts are required, too. A risk-management section addresses the types of equipment used by personnel, Whether security personnel are armed, what loss controls are in place and incident-reporting procedures. Along with our own application, we also submit an ACORD application and hard copies of loss runs for the past five years. We don't need copies of insureds' licenses, but we do ask for license numbers and can use them to verify data with state regulatory agencies. It typically takes two to three business days to put coverage in force, although we can accomplish this in one day if necessary.
To process a policy renewal, we update much of the same information that we gathered for the original submission. For liability insurance, we need to find out if the insured's exposures have changed, so we ask that the client again complete our industry-specific application and update payroll information, billable hours and the like.
The greatest liability loss exposures for our security-agency clients are allegations of assault and battery, and errors and omissions. For example, suppose a fight breaks out among some high-school students on school grounds. Security officers on duty at the school become aware of the altercation but do not respond to it immediately. The officers' failure to act in a timely manner might result in claims of negligence or omission against the officers and the company that employs them. In another case, a security firm could be held liable for loss to property that is damaged or stolen while being guarded by the firm's personnel.
For alarm companies, some insurers Write a package policy that includes general liability, property and business auto coverages. However, since we haven't found a package policy ideally suited for security-guard and investigation-agency risks, we normally use the ISO standard commercial liability policy (CG 00 01) and attach a set of endorsements provided by our security-industry program. A manuscript errors and omissions endorsement extends coverage beyond that afforded by the standard liability policy. Another extension protects against allegations of assault and battery and excessive use of force by security officers. A broad-form property damage endorsement extends coverage for property in the insured's care, custody or control. We offer an extension that adds contractual liability to the personal-injury coverage part, and a blanket provision making om' clients' customers additional insureds, if they require such status in their agreements. Finally, security officers who administer first aid or use mobile equipment can obtain liability protection through an emergency-medical services extension or a mobile-equipment extension, respectively.
Liability limits for security clients normally begin at $1 million per occurrence. The aggregate generally is $2 million to $5 million. We always recommend umbrella coverage, and limits for those policies range from $2 million to $10 million.
In addition to liability coverage, certain types of property coverage also are necessary for security industry insureds. Great American offers a property program suitable for these clients and, along with Kemper Insurance Cos., often provides the business auto coverage our insureds need. One unusual element in our fidelity program is the absence of a conviction clause in the crime policy. In a traditional crime policy, a suspect must be arrested and convicted of a theft before the insurer is obligated to indemnify the insured for the theft loss. Our policy waives the conviction stipulation and requires only a "reasonable belief" that a theft has occurred.
We encourage clients not only to insure their loss exposures, but also to avoid or minimize them Wherever practical. We offer to review insureds' contracts with their clients and recommend changes to reduce or eliminate excessive or unreasonable risk. For example, some proposed indemnity agreements would extend our insureds' responsibilities beyond those covered by their insurance policies. In response, We advise insureds to accept only contractual indemnity that fits within the coverage their policies provide and is limited to their own acts, rather than those of their clients. We also discuss such risk-avoidance techniques as declining to sign contracts that the security service provider cannot reasonably expect to satisfy. For instance, a business owner might wish to hire only two security officers to patrol a large business premises that would be more appropriately protected by 10 or 11 officers. In such a case, we counsel our insured to either renegotiate the service agreement or document their concerns and recommendations and attach them to the agreement. We often advise insureds to develop and use standard service agreements, similar to those used in the alarm industry, with indemnification terms and limitations of liability more favorable to our clients. Another effective loss-control tool is the risk management survey, wherein We visit an insureds premises (or, more often, that of its clients), note any hazards and suggest ways to make the workplace safer.
We promote proper employee training and on-the-job safety for our insureds and their personnel in other Ways, too. We publish and distribute a quarterly newsletter that addresses a variety of issues important to our clients, including workers compensation, employment practices and general liability issues. Our workers compensation carrier sends loss-control information to every account it under- writes as soon as coverage is bound. We offer clients access to our National Resource Safety Center video lending library, allowing them to check out videotapes designed to help employers implement a variety of Workplace training programs. Our alliance with the Indiana-based Crisis Prevention Institute provides another valuable resource for our insureds: a program for teaching non-violent intervention to diffuse volatile situations. The CPI sends us informational materials from its program, and we pass them along to insureds. The program has been especially well-received in schools Where students are acting out against teachers, and teachers Want to know how best to respond. CPI instructors visit schools and train teachers, administrators and other staff members techniques for avoiding physical confrontations and for handling potentially dangerous people while protecting themselves. Similar training for security officers helps them respond to conflicts and crises in a calm, yet authoritative manner that reduces the likelihood of physical confrontation.
Service:
Security-guard companies can reduce their loss risks by carefully following the post orders dictated by their contracts, conducting thorough background checks on prospective employees, and training their officers to follow appropriate security protocol. To assist our clients with these matters, we offer contract review and risk-management counseling. Insureds who implement safety measures we suggest, such as pre-employment screening or employee-training programs, often improve their loss experience and earn premium credits.
We issue certificates of insurance the same day they are requested and can get coverage in force quickly. The latter is crucial because many con- tracts between security agencies and their clients stipulate that the security agency maintain certain levels of insurance coverage. Thus, coverage must be in place before our insureds can enter into service contracts.
Clients submit all of their claims to our office, where they are reviewed by the producing agent and a claims adjuster before being forwarded to the insurer. Within 24 to 48 hours after We receive claim information, we pro- vide a client with a claim number and access to a claim analyst and legal representation, if the case merits such services. We also have developed coverage-specific claim forms that allow us to gather precisely the kind of information insurance companies need to process each type of claim. This helps to speed up the claim-resolution process and assists companies in settling or defending our clients' claims, should that become necessary.
When it comes to protecting security-guard, investigation and alarm companies, our agency has a definite edge over the competition. Our personal service, responsiveness and 30 years of experience create value for our clients that few insurance agencies can match.
Reprinted from the AMERICAN AGENT & BROKER - AUGUST 2000