Smart solutions for security risks

The Mechanic Group is a leader in the challenging market

By Elisabeth Boone, CPCU

A popularly held image of the security industry is of uniformed guards who accompany armored trucks full of cash, or who staff the lobby desks of large office and apartment buildings. Polite, crisp, and largely anonymous, these professionals play a vital role in safeguarding life and property.

As important as they are, however, there’s much more to the modern security industry than physical guard forces. Another segment consists of firms that perform investigative work and background checks—and there’s the rapidly expanding field of electronic security, which is growing not only in size but also in sophistication. Yet another sector comprises firms that manufacture, distribute, install, and monitor alarm systems for residential, commercial, and government clients.

Arranging insurance for today’s security-related risks is both complex and challenging, and a firm that’s leading the way in creating solutions for this industry is The Mechanic Group, Inc., of Pearl River, New York, a managing general agency that places business both directly through retail agents as well as through brokers on a wholesale basis.

The Mechanic Group was established in 1989 by founder and former CEO Irv Mechanic, who for decades had operated a life and health insurance agency that served primarily New York City police unions, their members, and their elected officials. Irv Mechanic adopted a business model that expanded the agency’s focus to offering property and casualty coverages for security- and investigative-related risks. Today the firm’s 22 employees provide insurance or surety services to more than 2,000 firms in all 50 states and throughout the world.

“We pride ourselves on offering best-in-class insurance solutions for physical security guard, electronic security, investigation, and background screening companies,” says Marc Katz, who serves as principal, open brokerage, in The Mechanic Group’s wholesale division. Katz has 15 years of experience in the security industry and joined Mechanic in 1992. Since that time he has developed a nationwide network of more than 300 brokers representing almost 1,000 clients.

Other members of The Mechanic Group’s executive team are Mike Lehner, principal, large lines division; Steve Mechanic, principal, retail division; Matt Disparte, vice president; Frances Ennis, vice president, claims department; Jeff Sinclair, vice president, operations; and Renata Bednarski, controller.

The business model

Explaining Mechanic’s business model, Katz says, “Because our model allows for both broker access and retail direct access, it is mission critical that our underwriting criteria, insurance forms, and pricing are identical regardless of submission source. To accomplish this, we use state-of-the-art technology that allows all underwriting to flow through the same automated system. This ensures continuity from submission to submission,” he says. “By working as a hybrid MGA, we are better able to understand risk and market trends associated with the security guard, electronic security, and private investigative industries. This in turn allows us to help clients and their brokers with risk management, loss control, and claims management services that our competitors may be unaware are needed,” Katz asserts.

A key to Mechanic’s success in delivering insurance solutions to the security industry, Katz notes, is placing business with top-rated carriers.

“We have a best-in-class primary liability program with Gemini Insurance Company, a member of the W.R. Berkley Group that is rated A+/XV by A.M. Best,” Katz says. “The program provides unique coverage extensions that respond to current legal trends and meet the needs of today’s security and investigative firms. For example, the program now includes electronic data liability and civil rights liability for alarm and physical security agencies,” he explains. “We also have general wholesale agreements with Lexington Insurance Company and Lloyd’s of London for submissions that are larger or more complex.

“To complement our liability program,” Katz continues, “we deliver an umbrella program with Navigators Insurance Company, which is rated A/XV by A.M. Best. We’ve worked with Navigators to develop a true follow-form umbrella policy to provide the customized coverage add-ons that we offer in our primary program.”

For workers compensation, Katz says, “We’ve partnered with The Hartford. Insureds benefit tremendously from our expertise in conjunction with one of the nation’s leading insurance companies. Expert, responsive claims handling and claim management are assured,” he emphasizes. “We also work with other highly rated insurance carriers to write workers compensation tailored to the needs of certain states and exposures of the insured.”

Ancillary coverages such as management liability (D&O, EPLI, and so on) and bonds are written with the W.R. Berkley Group, and Mechanic’s fidelity/crime program is with Great American Insurance Company.

Key exposures

Each segment of the security industry faces a unique set of exposures, and within a given segment, exposures may differ from firm to firm.

“When talking about exposures, it is important to break them down by line of insurance,” Katz says. “On the general liability side, the main exposures are bodily injury, personal injury—such as false arrest or detention—and damage to property in the insured’s care, custody, or control. Our program customizes and broadens these basic GL coverages by offering coverage extensions for errors and omissions (i.e., wrongful acts), assault and battery, broad form property and theft, blanket additional insured and blanket primary and non-contributory liability, EMT and paramedic, and electronic data liability, among others. We also offer first- and third-party employee dishonesty coverage, and we’re one of just a few MGAs to offer complete bonding—bid and performance, surety, and so on—to this class of business.”

As was noted earlier, The Mechanic Group arranges coverages for the security industry using a combination of admitted and nonadmitted markets.

“With the exception of our general liability and umbrella programs, all of our coverages are written on an admitted basis,” Katz says. “That being said, we understand that there is a certain perception of nonadmitted status. Because many security risks are complex and are not so cut and dried as in some other industries, writing GL and umbrella on a nonadmitted basis gives us the flexibility to creatively underwrite and quote an account that an admitted market might not be able to entertain. We insure some of the largest and most well respected security firms in the world. Especially for these clients, the issue of admitted vs. nonadmitted status is virtually nonexistent.”

Gaining an edge

In a soft market, with competition for business keen among both specialty wholesalers and standard carriers, how does The Mechanic Group seek to position itself for competitive advantage?

“Underwriting in the soft market cycle, we are conservative with an emphasis on loss control and risk management,” Katz replies. “Most responsible competitors follow a similar footprint, although some publicly traded insurers are unrealistically relying on low fully developed ratios that weren’t possible when the market was hard—let alone now when prices are down dramatically. We adhere to an old-school philosophy, which means that we, and our insurance company partners, deliver on the promise we make in every quote proposal we deliver.

“The Mechanic Group brand is recognized by many brokers, agents, and policyholders as best in class by line of insurance,” Katz asserts. “Our reliability in the marketplace extends over three decades and is backed by the commitment of the principals—Mike Lehner, Steve Mechanic, and I—who have built the firm from infancy.”

On the retail side of its operation, The Mechanic Group works with both agents who specialize in the security industry and those who may have only an occasional need for the firm’s services. “Our primary focus is on providing the very best and most responsible, cost-efficient insurance products to the security guard, private investigative, and electronic security industries,” Katz declares. “We welcome submissions from specialist retailers as well as the occasional submission from a generalist. Both benefit from working with The Mechanic Group because of our industry expertise and our ability to offer unparalleled risk management solutions.”

In addition to insurance programs, Katz notes, “We also provide other risk management tools, such as contract management. Contracts and their language play a major role in the security world. It is vital that an insured’s contract with a client be worded so that indemnity, hold harmless, and additional insured provisions apply only to losses arising from the insured’s direct negligent acts while performing agreed-upon duties,” he explains. “Such language can result in lower claims costs, which translate into future premium savings. We also monitor claims activity and provide claim reviews for those who request them.”

Eye on the market

The market for security risks, in tandem with the overall property/casualty market, remains soft and competitive, Katz observes. “Over the past year or so we’ve been seeing more capacity in the security industry marketplace, which is increasing competition and driving prices downward. We’re seeing more general lines carriers pursuing this business than are normally active in the specialty lines market. While this is creating more opportunities for program managers, it’s also intensifying competition. As a long-time specialist in this industry segment, we’ve seen this phenomenon before,” Katz says.

Looking ahead, he continues, “We’re taking steps to address both current and future market trends. We currently have market availability for all lines of coverage for security, investigative, and alarm risks. With the market softening, we’ve focused on developing new insurance products with the aim of rounding out accounts more effectively. We’ve also been monitoring our results more closely to avoid following market pricing trends and underpricing accounts,” Katz comments. “We’ve also focused on the distribution side by finding new ways to market our programs, especially using electronic means to communicate information about our products.”

Navigating a challenging market with confidence, The Mechanic Group delivers creative insurance and risk management solutions to security risks using its successful “hybrid MGA” business model.

For more information:
The Mechanic Group, Inc.
Web site: www.mechanicgroup.com