Specialty Lines Markets
Security guard firms: Growth drives opportunity
Promising trends in this segment bode well for agents
By Dave Willis
As some areas of the economy continue to struggle, agents and brokers may want to consider growth opportunities in the security arena. "Security operations represent a growing business segment," explains John Bures, CPCU, senior vice president for CoverXSecurity. Data from an IBISWorld Industry Report on Security Services in the United States bears that out.
The report says that, as the economy rebounds, "businesses are reevaluating where their recovered dollars should be spent and investing in better security." It adds, "Many businesses will increase the number of contracted security staff, as well as the number of hours that guards are on duty." The report projects nearly 5% annual revenue growth through 2015.
Tory Brownyard, CPCU, president of W.H. Brownyard Corporation, is seeing growth first-hand. "In our own book of business, we have seen firms increasing in size between 5% and 10% over the past year, on average," he explains. "Many accounts that specialize in government security have been growing at a higher rate, due to the outsourcing of security guard services by federal agencies."
He adds, "Companies that used to employ their own in-house security guards have turned to contract guard firms for these services. Plus, budget cuts at the local government level have led to greater use of private security firms."
Brownyard says working with security guard firms can help agents and brokers generate a significant revenue stream. "Individual security guard firms can generate a sizeable premium," he says, "with average general liability pricing in the neighborhood of $15,000 to $25,000 and workers compensation premiums running at $30,000 to $50,000 and higher."
Karen Izzo, president of Izzo Insurance Services, says average overall premiums can go much higher. "Combine general liability and workers comp with other lines—auto, employment practices, management liability and property—and it's not unusual for the average premium for an established security company to exceed $100,000," she explains.
Bures points out that security firms can benefit from specialized insurance coverages and segment expertise. "Agents and brokers can differentiate themselves by becoming familiar with the business," he explains. "Building expertise will help them build a strong presence in this niche."
There's good reason to do so. "A limited number of 'specialists' compete in the segment," he notes. "This spells opportunity for agents and brokers who want to gain the knowledge required to serve the security industry and build relationships with people leading these firms."
Paybacks can be significant. "There is a great deal of loyalty in this business," Izzo explains. "If a security company has confidence that the broker understands its exposures and has properly provided appropriate coverage, the relationship can extend for years."
Find and get 'em
Agents and brokers looking to enter the business need to start somewhere. "Become active in industry associations," Bures explains. "They provide great opportunities to learn more about the business and to make contact with forward-thinking security firms."
Brownyard concurs. "Association involvement represents a great way to determine which security firms are 'best in class,'" he says. "One of the major associations is American Society for Industrial Security (ASIS.) It's a national organization with local chapters in most regions. That would be a good place to start."
Many states have their own associations, he adds, including CALSAGA in California, ASSIST in Texas and FASCO in Florida. "They all do a good job promoting the industry and providing useful information," he says.
Izzo's advice to agents and brokers looking to attract new clients is simple: "Do your homework!" She emphasizes the importance of reading current policy forms and becoming familiar with unique policy differences. "All policies may appear to have similar coverage but close examination will reveal vast differences," she explains. "Good, knowledgeable agents who take the time to read policy forms and terms are a valuable asset to any security company."
One difference she sees frequently involves insured requests for certificates of insurance naming the security company's client as an additional insured. "Most of the better security companies use their own standard contract," Izzo explains. "If written properly, this contract should not name the client as an additional insured." The agent should ask to see the contract and determine whether an additional insured requirement actually exists before issuing the certificate.
If agents and brokers aren't confident that the insured will communicate effectively with them regarding additional insured requirements in contracts they sign, there are things the agent should do. "Make certain the additional insured endorsement in the security company's liability policy responds if the additional insured is required by written contract or—and the 'or' is critical here—make sure the additional insured coverage responds when a certificate of insurance is issued naming the security company's client as an additional insured, without the contractual additional insured requirement," Izzo adds.
Understanding this, she says, can help a new agent demonstrate expertise to potential clients because they will be equipped to point out gaps in current coverage. "This can help build trust right away, since it's the most common coverage gap we see," she says. The second most common gap involves assault and battery coverage.
"Some policies have what is referred to as an 'assault and battery' endorsement," Izzo explains. "When the actual verbiage is examined, it is not truly 'assault and battery' coverage. Instead, it only covers 'reasonable force' or 'physical force to protect persons or property.' A security guard who gets into a heated argument and punches someone is legally guilty of 'assault and battery,' and not merely 'reasonable' or 'physical force to protect persons or property.'"
Brownyard says agents and brokers may find value in developing a relationship with a program administrator or MGA that specializes in the security industry. "For example, underwriters who handle the security guard program at our firm have more than 75 years of combined experience underwriting the industry," he notes, "so we are familiar with most security guard firms and can immediately let an agent or broker know the ins and outs of a specific firm."
Agents and brokers can also find deep industry knowledge by working with a specialist firm. "A program administrator or other specialist can help educate agents and brokers on what makes up a quality guard firm, by looking at the training, screening and supervision procedures in place and, more importantly, the types of clients that the security guard firm serves or will serve," Brownyard adds. "The composition of a firm's client base has a direct correlation to its loss ratios."
He points out the value of researching and choosing a carrier and policy that provides the broadest coverage available. "Make sure there are no coverage gaps and make sure the insurance partner has a good track record for handling claims quickly and in a knowledgeable manner," he says.
Bures suggests other reasons to team up with a knowledgeable partner. "Agents and brokers should consider working with a carrier 'specialist' to develop a specific marketing plan to reach businesses within the security industry," he explains. "They have knowledge of the industry and are interested in finding and writing quality business."
He also offers a tip on streamlining the process of attracting new security firm clients. "Agents and brokers should market themselves strongly on the Internet," he says. "There are a lot of firms in this space for which online marketing can be effective."
Many smaller, privately owned security firms throughout the United States don't get regular visits or contact from local producers, Bures adds. "The Internet provides a great opportunity to research, reach and engage with these firms," he says. "A good Web site that provides insight and shows expertise to these security firms will get traffic. An easy, online process to get a quote can help turn this traffic into revenue."
Keep and serve 'em
Once an agent or broker builds a position in the security firm space, they need to maintain it. Bures says it's important to get to know each insured and its specific business challenges and needs. "Then work with a carrier specialist to address these particular needs and challenges," he explains.
"Just as they do in other types of business they write, agents and brokers need to be responsive to the needs of their security clients," notes Brownyard. "This is especially important when, for example, an insured incurs a claim or a contract requires a particular coverage enhancement."
Izzo says it's, again, a matter of doing homework. "Keep up with all of the operations the security company is involved in," she explains. "Frequently, a coverage question will arise and we'll ask the agent how long the insured has been involved with the new operation. Unfortunately, too often the agent will say they had no idea the insured was doing something different. Agents and brokers can't assume that security companies remain static."
Brownyard says agents and brokers should stay attuned to security industry changes. "This will help them identify trends or new exposures that need to be addressed," he explains. Again, industry association involvement can help. So can reading industry trade publications. "Program administrators, MGAs and carriers that specialize in the security industry can also be an excellent source of industry intelligence that brokers can share with clients," he adds.
According to Bures, agents and brokers can combine their understanding of the security business with their insurance knowledge to add value. "There's real benefit in educating clients or policyholders about how market changes and new trends can impact insurance programs," he explains, "and how these factors can affect job bidding, as well."
Effective counsel can also make for better insurance programs. "It's important for agents and brokers to work closely with both their clients and their carrier to develop effective claims and risk control strategies specific to the account," Bures says. "These can help security firms improve safety, reduce their liability, control exposures and lower or, at least, better manage claim costs."
Izzo points out that security companies frequently are pulled into claims because they sign contracts without having them reviewed by their insurance broker or attorney. "Agents and brokers need to make sure security companies know they should only indemnify a client for the 'security company's negligent operations,'" she explains. "Too often, the security firm's client will create a contract that states the security company will indemnify it for all security operations. This can generate claims for the security company—everything from trip and fall or inadequate lighting to fencing or other premises liability claims—where there was no negligence on their part."
Brownyard adds, "When a guard firm takes on a new client, too often they are eager to sign the contract and close the deal quickly—and understandably so, given recent economic conditions. It's important to pay attention to contract wording, especially regarding financial responsibility in the event of a lawsuit."
Bures also suggests that agents and brokers counsel security firm clients on other issues, too. "Work with the security firm to identify higher hazard jobs and contracts they may be considering," he explains. "Make sure they understand the risk and work with them to help them assess the potential impact such jobs may have on their overall insurance costs."
Brownyard's firm focuses on this, too. "We spend a lot of time educating clients on this because it can have a tremendous impact on the cost and availability of insurance," he explains. "A guard firm serving a client with a high public exposure, such as a fast food restaurant or, say, an NFL football venue, will have a tougher time getting insurance than one that provides front desk security at an office building. Brokers can help clients weigh the pros and cons of accepting certain jobs, so they can make an educated decision."
Finally, Bures advises, "Counsel security firms on staffing issues. Resources exist—online and from partners—to help with this. Agents and brokers can help security firms improve their results by helping them identify and establish a strong, formal program for hiring and training new employees."