SPECIALTY LINES MARKETS

Standing guard

Specialists say security guard market is soft and dynamic

By Dave Willis

Security guard businesses, which for years had been viewed as recession-resistant, have recently felt the same economic pinch as other industries. "For the first time we're aware of, over the past two years, overall security guard firm revenues have gone down," explains Bruce Brownyard, president of East Islip, New York-based Brownyard Programs.

?Fortunately, notes Tory Brownyard, CPCU, president of The Brownyard Group in Bay Shore, New York, exposures aren't down as far as they could be. "While some small firms went out of business, payrolls for firms we wrote were not off that much," he says.

?Adds John Bures, CPCU, senior vice president of Southfield, Michigan-based CoverX, "On the portfolio level, the exposure base is relatively stable. For every risk we see come in with a reduced payroll, we're seeing one come in with an increased payroll, too."

?Tory Brownyard describes the security industry as "strong," noting that people still recognize the need for guard services. Post-9/11 security concerns are still driving that need. While private security jobs are down, government facilities have started to outsource work that was previously done by their own employees. "Government entities pay high wages," he says, "but they also have very stringent guidelines, which makes it difficult for some firms to get the work."

?Bures has seen some merger and acquisition activity among firms in its book. More prevalent, though, is insurance interest from new guard firms. "We are seeing quite a few new businesses come across our desk," he says. In some cases, experienced security professionals are venturing out on their own. In other situations, previously uninsured or underinsured firms are looking for coverage after being asked by property managers for certificates. "It's really a combination of factors," he says.

?According to one market expert, security firms have seen an increase in claims-related legal activity. "Over the last 12 months, security guard and patrol firms have experienced increased lawsuits arising from, or at least related to, subrogation-based litigation," explains Marc Katz, principal of The Mechanic Group, headquartered in Pearl River, New York.

?"This increased frequency of subrogation-based litigation is the direct result of indemnification and additional insured obligations in favor of security agency clients that make subrogation against security agency owners difficult to defend," he explains.

?Security firm protection

?Insurers are taking divergent paths when managing this increased risk, Katz adds. "Those that continue to properly cover contractual liability and additional insured-based claims are either being more selective in risk selection or are maintaining rates," he says. "Those that choose to continue reducing rates have no choice but to restrict, limit or exclude coverage."

?"Properly cover" are key words. Katz says, "We've seen some markets restricting coverage and holding rates, while others have taken a complete opposite approach."

?Bures says that while activity is strong, "The security guards and private investigative market is still soft, which is good news for insureds and bad news for underwriters. We're seeing requests for rate decreases regularly, and overall pricing on our book is down slightly over the prior year."

?Rates are the lowest Tory Brownyard has seen in the last several years. This, he adds, heightens the need for good underwriting and risk assessment. "We need to balance the fine line of providing a competitive program for clients, while making sure the book is profitable for the insurance companies we represent," he says. "That's where experience comes into play. We know what battles to pick."

?Some of the newer markets have less experience, he notes. "They're coming in with rates that just won't support the class of business and the accounts they're writing," he says. "It generally takes four or five years for results to develop fully. I expect there will be a wake-up call fairly soon."

?While rates are still going down, Bruce Brownyard says his firm has experienced an uptick in policy counts. "Some competitors may be backing off," he says. Another factor, he notes, may be increased market comfort with his primary carrier, Lexington Insurance Company, which saw challenges resulting from financial woes at parent company AIG.

?Lexington, which Bruce Brownyard says covers more than one-third of the top 40 security guard firms in the country through his company, recently increased program limits and implemented changes in their program's claims handling. "They named Wilson Elser Moskowitz Edelman & Dicker, the largest insurance defense firm in the country, as the national claims coordinator for our security guard program," Bruce Brownyard says. "Wilson Elser now oversees all of our security guard claims from coast to coast."

?The carrier also established a 24-hour-a-day legal liability hotline, staffed by Wilson Elser, for all of Brownyard Programs' Lexington insureds. "They're there to answer any legal liability questions any of our insureds might have," Bruce Brownyard says.

?Brownyard Group is also using its involvement in the security guard insurance arena to serve the industry better. The organization has been readying a new online education resource, dubbed The Brownyard Educational Center, for introduction at this year's ASIS International annual conference. "This is our one-stop, e-learning resource that provides a comprehensive, advanced library of continuing education, Webinars and other professional development degree programs for the security industry," Tory Brownyard explains.

?The company also works with ASIS International, the leading industry trade group, on an award that recognizes heroic action in the security business. The W.H. Brownyard Award for Meritorious Service is presented in conjunction with ASIS Foundation at the annual conference. This year, Brownyard Group tapped social media—Facebook and Twitter, in particular—to drive increased awareness of the award and of exemplary guards.

?Serving the market

?Significant market capacity still exists. "There are more choices available to agents and brokers in the security guard insurance marketplace," Katz explains. "It's important to take the time to know what each individual market offers. Policies vary quite a bit, and the intent of some endorsements is not always spelled out on quotation proposals."

?Katz adds a warning: "You want to avoid an E&O pitfall of offering less coverage to an insured, even though you may believe the coverage is the same. The only way to do this is to ask for specimen policies and take the time to read through them." Communication is key, he adds. "Ask the carrier or MGA comparison questions," he says, "and ask them to provide claim examples of how certain coverages are applicable."

?Tory Brownyard concurs. "Retailers have to do their research," he explains. "Agents will be able to get good rates, no matter where they go. They need to make sure they're working with a strong insurance company and getting all of the coverages that they need. It's an opportunity for retail agents to get their insured guard firms the finest coverage available."

?Bures stresses the need for agents and brokers to maintain close relationships with their security guard clients. "For many of these insureds, their business changes a lot," he explains. "An application may come in today, which spells out what kind of work the security firm does, but six or nine months down the road, its client roster—and the type of services it offers—may be dramatically different."

?It's important to be aware of such changes—for example, a shift from mainly office park security work to crowd control or security details at concerts or at venues where alcohol is sold—and to communicate the coverage implications. That's because, Bures says, carriers come at the business differently. "Some exclude certain operations," he explains, "while others are less restrictive. Agents need to make sure an insured hasn't moved into an area that is problematic for the carrier." Failure to properly share risk data could lead to cancellation for misrepresentation or a nonrenewal notice, he adds.

?According to Bures, it's important to be up front with carriers. "We can look at an application and rate it accordingly," he explains. "Where some of the more problematic exposures exist, we can put controls around it. But when something changes, the agent or broker needs to talk to us."

?He also encourages agents and brokers to consider markets that offer both general liability and workers comp coverage. "If you can find a place that does both, that's good," he explains. "That's because, in the security space, both of those lines present some interesting challenges."

?Other challenges exist, as well, Bures notes. "Auto can be difficult, because there's an underwriting fear of high speeds and excessive on-road exposure," he explains. "Also, armed guards and the potential for physical altercations may present challenges from an underwriting standpoint."

?Finding success in the market

?Tory Brownyard encourages retail agents and brokers to explore opportunities to serve the market. "There are not a lot of brokers writing guard business," he explains. "If an agent or broker is able to round out a guard account, it's generally a very nice premium."

?Agents and brokers interested in serving the market have a number of resources available. "State associations can be very helpful in marketing the class of business," Tory Brownyard adds. "The best thing agents can do is get in the door with a couple of guard firms. Generally, it's a word-of-mouth business. Guard firms get together at state association or other industry meetings and talk to each other about coverage and agents. It's the best way of connecting in within the industry."

?Retail agents without market expertise can find it rather easily. "They can team up with a program administrator who knows the security industry, who can walk them through its nuances, and who can explain specific coverages they need," says Tory Brownyard. "This provides a very formidable team to provide the best coverage to that guard firm."

?For those looking to build knowledge, resources exist. "Take advantage of the Internet and the technology that's out there," Bures says. "You can learn a lot about the business by going to Web sites like ours and other insurance providers. There's a lot of good information about what agents should be discussing with clients and prospects."

?"With more than 20 years of offering insurance solutions to the security guard industry, we have quite an extensive knowledge base," says Katz. "Our Web site has a wealth of information in its Resources section." Included, for example, is an overview of a recent Security Industry Symposium the firm hosted, which featured guest speakers on security industry-related topics such as labor law, safety act, bank credit, a federal security legislative update and security agency legal and liability trends.

?"We received excellent feedback on the symposium," Katz notes, "and the content would be valuable for any agent or broker interested in learning more about the market."

?Brownyard Programs offers e-mail newsletters to support agents and brokers. "I'd encourage them to go to our Web site and sign up for our quarterly newsletter, which addresses various issues affecting the security industry," Bruce Brownyard says. "We write articles for it on different coverage issues, and Wilson Elser's attorneys write articles for it, as well, on various legal issues." An archive of past newsletters is also available, for those wanting more information.

?The author
Dave Willis is a New Hampshire-based freelance writer and regular Rough Notes magazine contributor.