Not On My Watch: Considerations for Insuring the Security Industry

The private security industry is a nearly $400 billion market comprised of a diverse group of professions and specialties.

Security officers are the most visible segment, but this industry also includes security firms, security equipment companies, security consultants, private investigators, counter-terrorism experts, cyber security experts and more. Growth within these professions is driven by visible and heavily debated trends, such as cuts in the public sector and police departments, developments in digital technology, and calls for increased security in response to mass shootings and terrorist attacks.

Insurance agents should examine these trends to understand the risk management needs of security professionals and businesses—and the growing number of opportunities surrounding them.

Sounding the Alarm

Reactions to mass shootings and acts of terror continue to affect the growth and composition of the security industry. Security firms and their agents and brokers tend to see a spike in inquiries after high-profile tragedies like the Pulse nightclub shooting in Orlando, Florida, which led to calls for increased security in the form of armed guards at nightclubs.

But insurers know they must carefully weigh the pros and cons of armed security officers when facing these reactions. For high-profile posts like securing a military base, arming guards is often justified. But the presence of a gun makes any adverse situation more dangerous, so from a risk perspective, an armed officer at a nightclub does not make good sense.

Therefore, security firms that supply armed guards often have trouble securing insurance coverage and are relegated to the non-admitted market. In these cases, independent agents can serve as advisers, explaining the risks of arming guards along with the related insurance implications in order to make sure security officers have proper coverage.

Wider Exposures

Several years ago, there was an increase in public sector layoffs, particularly within the law enforcement community—which in turn increased demand for private security. Because of this, many former law enforcement officers are now entering the private security and investigative sector and forming private investigation or security consulting firms. These startup firms often do not understand their insurance needs and try to get by with insufficient coverage.

At the same time, security officer positions are beginning to encompass more varied duties. In many instances, such as large public gatherings, security officers now take the place of police. Such situations can be risky posts for security officers, who can’t be everywhere all the time and may be unable to break up a fight at a concert 20 rows above their station, for example.

In addition, some officers are assigned to posts with non-security duties, such as janitorial tasks, EMT support or chauffeuring. This increases the security officer’s risk exposures; the security officer or the firm they work for may be held liable when, for example, someone slips on a recently mopped floor. The security firm may not have adequate insurance coverage for these new exposures.

The health care sector is another prime example of expanded duties. For security professionals, hospital work is surprisingly risky. In many situations, officers are asked to restrain patients, transport patients and carry guns. It’s important for supervisors to provide clear post orders to officers to avoid exposing them to dangerous situations.

Coverage Solutions

Across all specialties, security professionals face several risks inherent to the work that a standard general liability policy either does not cover or actively excludes, such as coverage for care, custody and control. Allegations of excessive force and battery are another consistent problem for security officers. Because a standard general liability policy only provides coverage for reasonable force when protecting persons and property, specialized security industry insurance policies should include assault and battery coverage.

Additionally, a business may contract investigators and cybersecurity consultants to check IT systems for security vulnerabilities or build a security protocol. If a hacker exploits a security vulnerability, the company may claim the consultant didn’t adequately protect the system. Investigators and consultants should have cyber liability or electronic data liability coverage, which is not standard in general liability policies.

Eliminating all risk in this sector is impossible, but trends in specialization and training are helping security professionals better manage risks. More firms are specializing in certain industries, which helps their security officers develop more expertise and react rationally to challenging situations. Plus, overall training has improved in the last fifteen years, and training is the best risk management tool a security firm can use.

Private security is a rich and complex industry that is expected to undergo even more dramatic changes over the next decade. But in this age of terrorism and cybercrime, understanding its modern history as well as its common risk exposures and coverages is important for agents serving commercial lines.

Tory Brownyard is president of Brownyard Group, a program administrator that pioneered liability insurance for security guard firms more than 60 years ago. Contact him at 800-645-5820.