September 16, 2010
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Question:
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Ken
I currently am insured under Scottsdale and after reading your email newsletter recommendation about the SARRG insurance offered through the ESA I got a quote. My annual savings would be $1,147.50 with the ESA dues costs figured in. However, is it worth the risk in light of the following information I received from my Insurance Broker. Please comment.
Here is what my Insurance Broker wrote me:
“The first and most important aspect of this quote you need to be 100% aware of is this is NOT an insurance company, this is a Risk Retention Group RRG. What this means and they state it on the last paragraph, this entity is NOT regulated by the State of Florida and is NOT protected by the Guarantee Fund. IF they do not have enough money to pay claims you are just out of luck with no recourse. In addition, this entity is NOT rated by any of the rating agencies in the United States, so if you need to provide a Certificate of Insurance for a job and the contract state you must use a rated carrier you will not be able to comply with the requirement.
One more item you need to pay attention to is you are required to make a “Capital Contribution” to this RRG to help fund the claims paying ability. This is NOT required for authorized standard insurance companies and could go up in the future.
I am not saying this is a bad RRG or not to do it but I want you to know the full picture before making your decision. Our own insurance policy for the office will not protect us if we sell any kind of insurance associated with a Risk Retention Group due to the unknown financials and lack of regulations they operate under.”
Thanks!
Chuck
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Answer:
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The short answer is that the savings in premium is worth the switch. There is much more, however: SARRG is the only "insurer" that is industry owned, controlled and operated. As far as I can tell, SAARG is the only "carrier" that: (1) understands the alarm industry; (2) appreciates the statutory and case law that has evolved affecting the alarm industry; (3) understands how to evaluate an alarm company for purposes of underwriting considerations [is the alarm company a good bet to insure?]; and (4) has a defense posture that seeks to protect alarm law, which necessarily protects the insured alarm company. If a carrier's first [and sometimes only] consideration is "cost of defense" v "settlement" then you need a new carrier. It is not surprising that there is an increase in alarm litigation. Subscribers and particularly their insurance carriers know that alarm companies are becoming easy prey - just sue them and either extract a settlement, or go to trial and leave everyone wondering, how the hell did the alarm company lose that one? [And, yes I intend to comment on the recent Sonitrol loss in Colorado for over $10 million dollars - I am waiting to see the alarm contract involved before I comment.]
I asked SARRG's spokesman to comment. Here is his comment:
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Comment:
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Ken,
I love responding to these statements from insurance agents that mask
their potential loss of commissions in a fog of reasons to stay with
them and not save some money even with the capitol contribution. Okay,
here is the response one by one.
Risk Retention Groups were formed under legislation of the Federal
Government to allow groups of people to form groups to buy insurance
where there was a lack of such offerings. In the 1980's there was a
severe lack of coverage available, in the late 1990's there was a
constrained marketplace and that is why ESA (formally NBFAA) started
this program, with its own significant capitol, for the benefit of its
members. The capitol contribution actually is an investment that policy
holders can get back after they have vested in and cancel their
policies.
The State Guarantee fund is great for insured's such as those in states
that are prone to natural disasters when big insurance companies go
under, like in Florida after a huge hurricane. I remember all the real
insurance companies that went bankrupt after the hurricane that hit
Homestead, FL. For SARRG to become crippled there would have to be more
full limit claims against our insured's in one year than there currently
has been industry wide for any one year since I have been involved in
the industry. 28 years!
I don't know how old this e-mail response from Chuck's agent is, BUT
SARRG is rated by A.M. Best and as such our insured's have not had the
issue they once did. Here again proof of our stability from the premier
rating company in the world. Our insured's needed it, and we delivered
it.
There is no lack of regulations that we operate under. We are audited
not only by our private audit firm but also the State of Vermont where
we are domiciled. We have to file quarterly statements with federal
regulators and the insurance commissioner's of every State that we do
business in. We have received permission from every State Insurance
Commissioner to do business in their State, which includes Florida! Did
Chuck ask for Scottsdale's financials, probably not, but why not?
Because his broker said that they were okay? What a double standard.
The bottom line is simple and consists of these points -
1. Insurance agents are as cut throat as alarm companies. They will say
anything to keep you as their client and take your money.
2. When market conditions change and coverage is hard to obtain, SARRG
will still be there to cover the interests of its policy holders and the
ESA.
3. SARRG will not save everyone money. SARRG has strict underwriting
guidelines and will never insure companies that don't meet the rules,
such as having proper contracts or trained personnel.
I like to see anyone in the industry who has insurance and a claim try
and talk to their claims manager and have an intelligent conversation
about protecting their rights and that the alarm did what it was
supposed to do.
Bart A. Didden
Executive Claims Manager
Member Board of Directors
Security America Risk Retention Group - SARRG - A.M. Best rated - and
overly regulated by government (the same as in my central station
business)
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another response
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Hello Chuck,
Thank you for considering Security America RRG as your general liability and professional liability insurance provider. Per our conversation, I have summarized the answers to the concerns outlined below.
1) Security America Risk Retention Group (SARRG) was formed in 2003 under the Federal Risk Retention Act of 1984 to offer commercial general liability insurance to member companies of the Electronic Security Association. Because SARRG’s specialty is to offer this type of insurance to electronic life safety, security and systems industry, we understand and know how to rate this industry. Our underwriting guidelines are very specific and we will not insure companies who do meet our requirements.
2) It is extremely difficult for risk retention groups to obtain an AM Best Rating, however SARRG is rated by AM Best. In addition to our B++ Rating, we have a reinsurance agreement with an A+ Rated company, Lloyds of London. Although we are not part of the state guarantee fund, we do have the backing of an A+ Rated company in the event of a large claim.
3) SARRG is domiciled in the state of Vermont and we are audited by the VT Department of Insurance every two years. In addition, we are audited every year by an independent CPA firm (who are required to report all findings to the VT Department of Insurance) and by our reinsurance carrier Lloyds of London. SARRG has approval to conduct business from all 50 insurance departments and we are licensed to operate in all 50 states. The Vermont Department of Insurance would not allow us to operate if we were in danger of becoming insolvent.
4) The Capital Contribution is paid by all insured’s for the first three years they are in the program. This amount is 7% of the premium and this percentage will never increase. The amount of the capital contribution equates to stocks held in the insured’s name. When an insured enters their fourth year in the program, the capital contribution is waived and the insured is fully vested in the program. When the insured elects to leave the program, they are entitled to a return on their investment and is calculated based on the book value of SARRG at the time they leave.
Please let me know if you have any additional questions about the SARRG program or the structure of the risk retention group. Thank you.
Cheryl Jones
Business Development Specialists
Security America Risk Retention Group, Inc.
2002 Summit Blvd| Suite 900|
Atlanta, GA 30319
T 866.315.3838 | F 877.865.0003
CJones@beechercarlson.com