November 4, 2010
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Hi Ken,
A brief comment on failing insurance companies: There have been several insurers serving the alarm community that have failed in the past decade, Legion, Superior National, Reliant, to name a few.
While being an “admitted insurer” does provide the failing insurance company’s policy holders with whatever limited funds the state has in its finite pool, the protection afforded here is limited (i.e. California’s Guarantee Fund caps protection at $500,000) compared with the policy limits purchased by many alarm dealers of $2M, $5M or higher.
The only proven gauge of an insurer’s future claim-paying ability is its financial rating, most reliably from insurer rating service AM Best (free real-time ratings available for all qualifying insurers at www.AMBest.com). No insurer has ever filed for bankruptcy with an “A rating”, and without that A rating their ability to be counted on for paying tomorrow’s claims is considered questionable. But with the on-line availability of rating-service information, the alarm community can stay informed and make sure it is partnered with financially sound insurers.
Larry St John, CIC,
Eclipse Marketing & Insurance Services
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Ken:
Unfortunately Security America has run across several policyholders, including myself, who previously placed their GL and E&O insurance with either Legion Insurance Company or Frontier Insurance Companies. Frontier was placed into rehabilitation and 2001 and has never emerged again to write business. Legion was placed into liquidation in 2002.
Both of these companies, along with other notable insurance company failures of Kemper and Reliance, were at one time rated A by AM Best.
I also want to add that in most cases the funds of a State Guarantee Fund, only extend to the total on hand that was paid into by the defaulting company. So you could call it more of a State managed reserve fund and not a mutual insurance fund that provides unlimited coverage for who ever goes bad.
Just to expand on what else is in my response, about “A” Rated companies like Kemper and Reliance, is that the “A” rating does not offer any protection or absolute protection against the failure of a company. There are many items that can / do contribute to a failure. Such as –
Ø poor to non-existent underwriting guidelines
Ø poor or complete lack of understanding the risks associated with the product(s) they are selling in their portfolio (some coverage other than the alarm industry can take down a carrier, like a natural disaster)
Ø general negligent day to day operation of the insurance company
Ø placing policy reserves in unsustainable or risky investment products
Ø claim settlements that are not warranted and/or excessive rather than providing a defense
In my role at SARRG, we have paid claims and we have defended our customers, but more so than anything else, when our insured was responsible and the claim about was justifiable we pay lightning fast. Never do we jeopardize the customer relationship. But when our insured did nothing wrong, has the benefit of a properly formatted contract, we hire only industry proven attorneys who understand what we do and why it is important to win, because we are building more case law to sustain our industry for the long run.
Bart A. Didden
Executive Claims Manager
Security America Risk Retention Group – SARRG
A wholly owned insurance company by the ESA (NBFAA) and its policy holders
866-315-8686
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Ken— Insurance Companies and the Alarm Industry ;
Today their are over fourteen (14) Insurance Companies providing Insurance products to the security Industry. All of them are rated by AM Best and or Standard and Poor’s and disclosed Assets, Claims Expense, Cost of Operations, Profit & Loss and other information the Insured needs to know about any Insurance Companies financial conditions . If you find any company that is rated lower them “A” you owe it to yourself to investigate the Premium’s Paid vs. all Costs of Operations to confirm Net Profits. Risk Partners or Re-Insurance Provides can take a large % of the Risk of Claims, However if you have a total of 5,000.000 Limits in Re-Insurance to paid claims and you need to increases Limits due to claims Loss--the cost to buy more Re-Insurance will impact you cash reserves , and you may find the Re-Insurance Partners do not want to sell you more Re-Insurance. That is what happen to the three (3) Insurance Companies ( one of which was a RRG based in TX.) that went Bankrupt ..When you compare the financial resources of Hartford, Scottsdale, Chubb, First Mercury, Zenith and others companies including SARRG, you will make your owned value judgment.
Getting the right Coverage’s---Ask your Licensed Agent/Broker to explain the difference between General Liability E&O and Network Electronic Data E&O for your Alarm /Security operations. Since 911--- A review needs to include Acts of Terrorism and how it affects both GL & Network Liabilities, Auto, Property & Workers Comp. Exposures. Understanding your Risk’s –before you buy Insurance is the first step.
Ken-thanks again for your very important Security e-news letter.
Michael J. Kelly
Insurance Agency
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Hello Ken -
I've been reading all of these messages and have resisted commenting but it's frustrating to read Bart question the financial stability of Hartford or Scottsdale when they have billions in assets in comparison to SARRG's assets in the $2 to $5 million category as reported to A.M.Best.
Financial Information from A.M. Best (rating bureau) for the companies below is was obtained from the A.M.Best website 10/23/10 is as follows:
SARRG - Rating: B++ (Good)
Financial Size Category: III - ($2 Million to $5 Million)
Hartford - Rating: A (Excellent)
Financial Size Category: XV ($2 Billion or greater)
Scottsdale - Rating: A+ (Superior)
Financial Size Category: XV ($2 Billion or greater)
Fireman's Fund - Rating: A (Excellent)
Financial Size Category: XV ($2 Billion or greater)
I have been providing coverage for the security guard and alarm industry for over 30 years and I have seen SEVERAL insurance companies that have provided coverage for security companies "go by the wayside" including Frontier Insurance Co.; Security Service Insurance Co., Transit Casualty and more.
My alarm and guard program is written with the Fireman's Fund Group (although I have also utilized both Hartford and Scottsdale to provide coverage).
It is true that the financial size of the insurance company that provides coverage is critical. That is why insurance companies that write umbrella or excess coverage over alarm and guard policies require at least a minimum Financial Size Category of VIII.
If it is the intent to provide your readers with accurate information regarding the financial stability of insurance companies, it would be prudent to provide them with current, valid financial data verified by an independent third-party (A.M.Best) rather than one of your readers providing information from his life insurance company.
If you want to give your readers credible information, I suggest you use a credible source such as A.M.Best.
Karen Izzo
Security Guard Alarm Insurance Specialists
(800) 800-1704
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Ken,
I think it’s fair to say that we all appreciate you continually providing valuable information, via email, to thousands of us in the security industry. The open forum seems to work well, in most cases, and the feedback from the various professionals always interests me. Many things are black and white / right or wrong while others are simply just opinions or individual perspectives.
With that said, I felt the need to respond to the recent email where Bart shared his opinion on Prudential and their sub-insurers. I’m not really sure what the message was, if any. Was he just sharing his opinion and what he had learned about Prudential?
Understanding that Bart is the Executive Claims Administrator for SAARG, is he implying that SAARG is more financially sound than Hartford or Scottsdale and therefore a better choice? Many people that read these emails get confused and I believe the prudent thing to do is to ask a representative from SAARG to answer the following questions so that your readers can have factual information, in addition to individual opinions.
§ SARRG representatives questioning other carrier identities, (Who is The Hartford, Scottsdale and others …) is the proverbial “pot-calling-the-kettle-black”. We should equally ask who is SARRG? By current federal regulations, Risk Retention Groups must be state-chartered insurance companies. As a starting point, SARRG has the same DNA as the companies he is questioning the identities of.
§ SARRG is heavily supported by reinsurance carriers. Has SARRG fully evaluated the full identity of their reinsurance providers?
§ Another interesting fact -- Risk Retention Groups are every bit as unstable, long-term, as the companies mentioned. I was looking at a RRG study, and for the period 1987 – 2001. 142 risk retention groups were formed and 73 retired. As of the 3rd Quarter 2009, there were 239 risk retention groups filed with the NAIC. How many will there be in 2015? Can SARRG guarantee their solvency any stronger than any other carrier?
§ SARRG’s AM Best Rating also speaks to their long-term solvency. Is their rating, B++? That is far from the other A+ and A+ XV carriers that are being questioned.
This response and request for clarification is not an attack on Bart or SAARG. It’s simply for your readers to receive cold hard facts about insurance just like they do about equipment and industry procedures. Opinions are fine but facts are better. Facts allow everyone an opportunity to form their own opinions.
Kind regards,
Alice Cornett Giacalone, Senior Vice President
Berrian Insurance Group
800-917-2542
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Ken
Thanks for this insightful article. How can we learn who some of these carriers are that we should avoid or look much closer at?
BB
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Ken
It’s a free world----- But what we don’t need is more misleading and confusing views from Bard Didden (a Unlicensed Insurance Agent / Broker) specking about Prudential Insurance which has no (Niche) connections to the Security Industry. Now Mr. Bidden has given only part of the story on Cover X, First Mercury Insurance: One of the largest and leading Alarm & Guard Underwriters supporting the Security Induresty and the Licensed Insurance Brokers for over 37 years. Its very Important to Note: Full Insurance Services and Products (Not Just GL to only SARRG members) Includes GL, Cyber, Auto, Property Workers Comp., Umbrella, Bonding & D&O /EPLI Coverage’s are KEY to ALL in the Security Industry.
Mr. Didden needs to support the other Insurance Companies ( to Keep SARRG alive—other Insurance is also needed to its members)) and remember we In the Insurance Induresty need each other----- because every Security Dealer now can buy their Insurance from over fourteen (14) Insurance Companies ---No One goes without FULL SERVICES & PRODUCTS.—This includes Worldwide Coverage’s.
Today –The Security Induresty has the Best Network of Agents / Brokers with the Best in FULL SERVICES PRODUCTS of INSURANCE at any time in the History of Security..----this took team work over the past 60 years.
For The Insurance Team Network—
Michael J. Kelly, President
Michael J. Kelly Insurance Agency
800-329-5355
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Response:
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I've recently recommended SARRG, which is National's program, and First Mercury Insurance Company. Check with a broker who specializes in alarm programs - they frequently contribute to this forum.