Massive claims and settlements are no longer a surprise to the insurance industry and casualty lines are no exception. Many will remember the collapse of Surfside, Florida’s Champlain Tower South in June 2021. It resulted in a settlement of more than $1B.
But do you know who paid the largest portion of that settlement?
The condo building’s property carrier? No…
The umbrella insurer? No…
The liability carrier? No…
The firm providing on-premises security actually paid the largest chunk.
How much did the security firm end up paying? More than $500M.
Such a massive settlement highlights the unique challenges of insuring security firms due to the inherent risks, liability concerns, and the need for stringent risk management practices. Now more than ever, navigating the security marketplace requires a strong partner experienced in obtaining the right coverage.
More and more privately and publicly held companies are investing in security guard operations to protect staff and customers. With the legal climate continuing to support massive lawsuit verdicts, a number of substantial claims have resulted in meaningful disruption for general liability and excess markets willing to play in the security firm space. In fact, security guard firms are facing the hardest market they’ve seen in more than 25 years. Many legacy programs that previously offered premium of $15K just 2-3 years ago are now requiring premium in the $175K - $200K range. They’ve been hit hard by claims and are trying to offset those losses with a lift on new business in order to stay in the sector.
There are some carriers with a security guard appetite that are completely pulling out of or severely pulling back on writing security guards in certain states, such as Florida and Georgia. California, New York, and New Jersey are also being closely monitored by carriers. Over the last 12-24 months, a few programs that have been considered the mainstay for the previous 5-7 years have begun rolling back on offerings for specific accounts and classes, including those involving low-income housing, crowd control, or big-box retail because they’re typically viewed as higher risk areas for security. The available markets still willing to write security guard firms that work in those spaces have begun tightening terms, and the number of available carriers has shrunk. In just the last 12 months, two of the largest security guard programs have either exited the space or non-renewed policyholder business due to updated/tightened underwriting guidelines. In addition, a few programs are experiencing tremendous pressure to either non-renew certain lines such as Auto, Worker’s Compensation, General Liability, or Excess. Due to these factors, security guard liability insurance is now almost exclusively covered by the E&S marketplace.
Over the last 20 years auto insurance in the security space has held relatively stable - until now. Rates hovered between $1,500 on the low side and $3,000 on the high side. However, due to loss costs, social inflation, and various other factors, insureds are seeing double-digit increases, and in some cases, tripling of premiums. General Liability capacity is slightly more readily available than in the auto space, but if a risk is facing non-renewal, premiums are often increasing 30% - 50%, up to 100% in some extreme cases. Unfortunately, many agents and insureds are experiencing sticker shock when asked to pay multiples of what they are used to.
SOCIAL INFLATION IMPACT
Security guard firms operate in a high-risk industry. The nature of the work exposes them to many potential risks such as theft, vandalism, assault, or property damage. Unfortunately, these risks increase the likelihood of insurance claims, causing many insurers to view security guard firms as higher risk.
The liability concerns can also be wide in scope because of security guards’ duty to protect individuals and property. Security guards sometimes need to employ physical force or restrain individuals to maintain order or protect others. However, this can lead to claims of excessive or unnecessary force, resulting in lawsuits. On the other hand, if an incident occurs on a client's premises and the security guard fails to fulfill his or her duty, the security firm can be held liable. This potential for liability claims raises concerns for insurers, as they often face significant payouts in the event of a lawsuit. Increased litigation and social inflation are driving up jury award and settlement amounts. The impact of mass shootings, civil unrest, and expanded responsibilities post-pandemic has led to a significant increase in the severity of claims in recent years. With jury awards and settlements skyrocketing, even large security firms with a history of success are facing increasing rates and finding insurers more hesitant to offer the coverage they need. When security is in place during such incidents, the security firm will most likely be held responsible whether rightfully so or not. If they are held responsible, their policy limits, no matter the amount, are often exposed.1
CONTRACT LANGUAGE MAY EXPAND LIABILITY
Broader contract interpretations are also contributing to the higher costs of insurance claims as well as the tightening of capacity and higher rates. In many instances, contracted guards serve in multi-faced roles, including greeting customers at the door. Liability that previously fell on retailers is increasingly being pushed down to the security guard level. If a firm’s contract is ambiguous in scope and/or details, such as responsibility for reporting general building maintenance items, they can be held liable for a wider range of issues. In the age of increased looting, robberies, and assaults, this is becoming more problematic.
Contract language is often broadly interpreted by the courts and can result in security firms being held liable for injury to not only their client, but to third parties not even included in the contracts. For instance, a company that hired a security firm may have a third-party vendor come on-site the same day an active shooter event occurs. It’s important for the security firm to review all contracts with their legal team to avoid absorbing liability not covered by insurance.
POTENTIAL FOR LONG-TAIL CLAIMS
Another variable feeding into the increased cost of claims is the long-tail claim scenario. In the security sector, longtail claims often result from minor incidents that are never reported or reported late, rather than immediately. While some security firms may attempt to avoid reporting minor incidents, it’s more often the case that late reporting occurs because a security guard views an incident as not worth reporting. Sometimes security guards may not even realize they’re directly involved.1
HOW AGENTS CAN HELP
Agents and brokers will inevitably have to explain rate increases and changes to coverage limits or new exclusions to insureds at renewal. During this process, it’s vital that they help guide clients by discussing recent claims trends, identifying effective risk management strategies, and providing resources to help them better understand the claims process and shifting liability for the security industry as a whole. Agents and brokers should also encourage insureds to take proactive steps that can help mitigate risk and reduce potential liability, such as:
Review Client Policies & Procedures Around Use of Force. Insurers closely evaluate a security guard firm's policies and procedures for the use of force and may require strict guidelines and training protocols to mitigate the risk of excessive force claims. Underwriters also want to see details regarding firearm training as well as proper firearm usage, storage, and safety.
Consider Employee Screening & Training. Underwriting may request details regarding the qualifications, training, and experience of security guards when underwriting accounts. Companies that do not meet certain standards or fail to adequately screen and train their employees may be viewed as higher risks. Carriers may require evidence of proper licensing, certifications, and comprehensive background checks before offering coverage.
Provide Detailed Claims History. Submissions should include a supplemental application as well as at least 5 years of currently valued loss history. Reviewing a firm’s claims history can help illuminate the likelihood of future claims. Security guard firms with a history of frequent or severe claims may find it challenging to obtain insurance and will likely face higher premiums. Any sort of loss or claim should be clearly explained, and details provided on how any future risk is being mitigated. Having access to more information allows brokers to facilitate productive conversations with underwriting when marketing accounts.
Review All Contracts. Confirming that all contracts and work orders explicitly outline the details of the job, and do not over-promise or make guarantees, can help ensure the contracts aren’t used against security firms and their insurers later. Ideally, the scope of work should consistently adhere tightly to what encompasses true security services.
Review & Enforce Incident Reporting Guidelines. Security firms should make it clear that every employee is responsible for reporting any incident immediately. Based on the specifics of a company’s contracts, this could include reporting low-level maintenance items that over time, can create liability issues, such as out-of-service elevators, suspected wiring/electrical issues, or apparent cracks in building walls or foundations. The longer an incident goes unreported, the more complex a claim becomes, often making it a more costly, long-tail claim that chips away at both the security firm and the insurance carrier’s bottom lines. Such scenarios also impact the security firm’s reputation and make it difficult for insurers to properly assess and respond to the situation.
BOTTOM LINE
Communication is key, and in today’s market, giving insureds at least 120 days’ notice of significant policy and rate changes is important, along with being honest and forthcoming about why it’s necessary and what it means for their business.1 As the role of security officers continues to evolve in a world affected by a labor shortage, civil unrest, and active shooter instances, these risk management efforts will help security firms manage the impact of the current hard market.1
Carriers prefer insureds that demonstrate sound risk management practices and maintain a track record of mitigating losses. Due to these factors, insurers may require security guard firms to meet stringent underwriting criteria, implement robust risk management strategies, and pay higher premiums to offset the greater perceived risks. It’s important for security guard firms to work closely with insurance brokers and agents specializing in this industry to find appropriate coverage options and negotiate favorable terms. Team CRC has the market access and relationships required to find the best possible solutions for your insureds as well as an in-house Claims Advocacy Team ready to assist in the event a claim does occur. Reach out to your local CRC Group producer today to learn how we can help safeguard those we rely on to protect others.
CONTRIBUTORS
END NOTES
- Social Inflation and Increasing Demands Drive Hard Market for Security Industry, Insurance Journal, May 17, 2021. https://www.insurancejournal.com/magazines/mag-features/2021/05/17/613690.htm
- Securitas to Pay $517M in Surfside Condo Collapse Settlement, Security Sales & Integration, June 29, 2022. https://www.securitysales.com/news/securitas-517m-surfside-condo-collapse-settlement/
- SECURITY GUARD DEMOGRAPHICS AND STATISTICS IN THE US, Zippia. https://www.zippia.com/security-guard-jobs/demographics/
- Market Size of Security Services in the United States from 2012 to 2022, with a Forecast for 2023, Statista, June 2023. https://www.statista.com/statistics/294206/revenue-of-security-services-in-the-us/
- The US in 2022 Saw Highest Number of ‘Active Shooter’ Casualties – Deaths or Injuries – of the Past 5 Years, FBI Report Finds, CNN, April 26, 2023. https://www.cnn.com/2023/04/26/us/us-active-shooter-incidents-2022-fbi/index.html