Specialty Lines Markets

Protecting the exposures of security guards

Expansion of job descriptions presents growth opportunities and challenges

By Phil Zinkewicz

Private security contracting (security guards) is an approximately $13 billion industry in the United States, with 11,000 to 15,000 companies employing some 1.2 million contract security officers (guards), according to The National Association of Security Companies (NASCO). The U.S. Department of Homeland Security says that private security protects 85% of the nation’s critical infrastructure. Contract security guards are increasingly protecting military bases and installations across the country and around the world, freeing up important resources for more vital roles, according to the U.S. Department of Defense, and the DoD reports also indicate these programs have been successful and cost-effective in employing veterans.

And, according to Martin Herman, chairman of NASCO, security officers are the “true” first responders. They are on the scene as situations occur and are increasingly being asked to lend support to law enforcement and emergency personnel, he says.

In addition to his role with NASCO, Herman is also president of Special Response Corporation, a Maryland-based firm that provides specialized security services in times of crisis or heightened vulnerability, such as hurricanes, earthquakes, lootings and riots.

One of NASCO’s missions, according to Herman, is to promote higher standards, consistent regulations, balanced enforcement and ethical conduct for private security businesses.

“We’ve come a long way since before September 11th,” says Herman. “Prior to that horrific occurrence, the private security industry was almost an afterthought in corporate America. But after 9/11, the importance of private security firms became self-evident. Nevertheless, today we still have a long way to go. There are no federal laws regulating private security. Ten states have absolutely no licensing, training or background check regulations for security officers. Twenty-nine states do not require any training, including Washington, D.C. Sixteen states do not require criminal background checks. Virtually no states have standards or regulations for proprietary or in-house security officers—approximately 400,000 security guards nationwide.”

Herman says that NASCO has worked diligently to raise the bar in several states regarding training and licensing. “They are working to raise licensing, regulatory and performance standards for private security firms and security guards in certain states. For example, NASCO is introducing legislation requiring licensing and training for security officers in Mississippi and Colorado. The association is involved in training legislation in New York, New Jersey, Ohio and Washington, D.C. NASCO wants states to have level playing fields, and we are lobbying for this around the country. Some states only require state background checks, while others will allow federal fingerprinting checks. Mandatory training today is sporadic.”

Would the security industry benefit from more standardized, federal legislation regarding licensing, training, enforcement and other issues? Herman’s personal opinion is “Yes.”

Insurance viewpoint

How does the insurance industry view the security industry?

Karen Izzo, president of Izzo Insurance Services in Elmwood Park, Illinois, says the trend toward more training of security guards is welcome. “When security guards know what they’re supposed to do, when they’re supposed to do it and how they’re supposed to do it, then everyone benefits,” she says.

Karen founded Izzo Insurance Services in 1980 as an independent agency providing all lines of coverage, while targeting the security industry. For more than two decades, Izzo Insurance Services has specialized in the security industry, which has enabled the agency to proficiently and profitably underwrite the class, Karen says.

“When we started, we noticed that a good many security guard firms had serious gaps in their coverages,” says Karen. “We saw it as a challenge, one that could not be fixed with the standard BOP. We put together a policy that would fit everyone in the industry. Our policy can accommodate the largest broker and the smallest mom and pop shop.”

Karen agrees that 9/11 was a watershed for the security guard industry. “After September 11th, the security guard industry went from an industry taken for granted to one of extreme importance. And, as the years have gone by, insurers have recognized the potential of the industry. There have been lots of new changes and program enhancements, including the availability of higher occurrence limits and umbrella coverage from Fireman’s Fund Group. Also, alarm installation and repair companies are now a class that can be written in this same program.”

Karen sees continuing strong growth for the security guard industry. “As a nation, we have become more security conscious,” she says. “September 11th has changed how the country and the world view the security guard business.”

John Bures, vice president, underwriting for CoverX, a program administrator that writes security guard risks, agrees that the industry’s growth potential is “exciting.” CoverX was founded in 1973 in response to dislocations affecting commercial liability insurance market.

“The economic recession has hurt other industries badly,” says Bures. “But the security guard industry is still in a growth pattern for us. There are new players coming in every day. And the need for security is increasing in different venues. Look at the terrible things that have happened at our schools around the country. They need well-trained security guards for safety.”

One of the largest and oldest writers of security guard business is Brownyard & Co., according to its president, Torrence (Tory) Brownyard. Tory has a somewhat different view of the evolution of the security guard industry since 9/11. Yes, he says, immediately after September 11th, interest in more qualified security guards rose significantly in corporate America.

“That interest has abated a bit, however.” Tory says. “It probably has to do with the current recession. In today’s economic environment, many companies are looking to cut costs, and holding back on security guards is being seen as an option. I don’t mean that they’re cutting back completely, but maybe some companies are not hiring guards 24/7 or maybe only when the building is open. For that reason, security guard companies are looking for other ways to increase their income. Some are doing corporate investigative work and due diligence.”

Tory says the insurance market for security guard firms is soft, but not as soft as in other areas of insurance. “We haven’t seen any new insurance players getting into the business,” says Tory. “There has been a 10% reduction in rates over the last couple of years, and higher liability limits are available. And we have seen some security guard firms tightening up their contract wording. There have been a good many claims coming down against security guard firms where there is no negligence on the part of the security guard firm at all. So security firms are being more careful with contract wording to avoid this in the future.”