ÐÇ¿Õ´«Ã½

All of us recognise that there is a strong relationship between the security and insurance industries – both are concerned with minimising risk, or at the very least managing risk. Both also need to be paid for, while the financial links between the two should indeed be transparent.

Unfortunately, however – particularly for smaller businesses – insufficient attention is generally paid to the effect that security precautions might have on the level of claims (with relatively few rewards, in terms of reduced payments) for those businesses that employ appropriate security measures.

Neither is it just the simple fact that more stringent security measures will lower the levels of claims being made that needs to be taken into account.

Under current arrangements in the security sector, it's often the security provider that makes a claim when a theft takes place on a client's premises and losses occur. Indeed, security companies are increasingly being asked to accept even higher liabilities for losses in order to win contracts.

What this really means is that the insurance premiums paid by security companies are rising disproportionately, in turn raising their cost base by a considerable amount. Customers, on the other hand, do not see these costs directly. If a security company doesn't absorb the costs, and is forced to increase its charges, clients will view this as the 'rising price of security' – not the rising cost of insurance. This in turn may well cause them to think twice about their security provisions, meaning that: less security will be deployed, more losses will occur and overall insurance charges begin to increase. Nothing if not a vicious circle.

At Securitas Security Services, we believe that these costs should be far more transparent, and that good security should go hand-in-hand with reduced insurance claims and (consequently) reduced premiums.

In order to achieve that state of affairs, however, drastic action needs to be taken by the insurance community and the security companies together, with the support of business (ie end users). It's particularly important that these issues are aired now, not least because the events of September 11 are tending to draw attention from existing trends in the insurance market.

ÐÇ¿Õ´«Ã½ a symbiotic relationship
As insurance premiums for commercial properties have risen over recent months, many individuals have accepted (perhaps quite understandably) at face value that the events of last September have undoubtedly had a massive effect on the insurance market. It's important to remember, though, that insurance premiums were rising even before then.

At Securitas, we're interested in looking at ways in which security and insurance might be considered together to achieve the best value total solution for end users.

We would argue that the relationship between insurance and security is not one of the 'either/or' types, but rather one of symbiosis. Insurance should be used to cover unpredictable and therefore unavoidable losses, while security should be deployed wherever possible to eliminate foreseeable problems and, in so doing, reduce the risks to insurers (and, consequently, the premiums they need to charge).

While this would make good sense in a perfect world, it quite obviously doesn't reflect the current situation that pertains in the real world – but perhaps it should.

We are often told that unforeseeable claims such as those for weather damage have been exerting an ever-increasing impact in recent years, and this will of course be reflected in premiums. However, statistics produced by the Association of British Insurers (ABI) suggest that commercial claims for losses arising from theft – which have been running at just under £200 million per annum in recent times – are comparable to those from weather damage in all but the worst years, and yet seem to attract less attention.

The relationship between insurance and security is not one of the ‘either/or’ types, but rather one of symbiosis. Insurance should be used to cover unpredictable and therefore unavoidable losses, while security should be deployed wherever possible to elim

In addition, claims for fire damage – the biggest single category for claims, standing at around £600 million per annum – have an arson component estimated at up to 50%. Again, this could be reduced to some extent by additional preventative security measures.

A lack of clear guidance
Bearing these statistics in mind, it seems somewhat shortsighted that while so much guidance is given by insurers on the precautions to be taken against fire, similar advice on the selection of appropriate security services is so slight. Even though manned guarding is by far the best way of reducing the risk of theft, and must also act as a deterrent against the arsonist.

Perhaps one of the central reasons for this lack of guidance is due to the inherent difficulties in assessing the benefits of increased security.

And let's face facts here, where the client is concerned risk is often viewed as a difficult or even abstract concept. On the one hand, every business is obliged by law to carry employers' liability insurance, which thereby simplifies one insurance decision and introduces each and every business to the insurance industry. Similarly, public liability insurance is also widely appreciated and well understood and, as our society becomes increasingly litigious, this form of insurance will maintain its high profile.

It's also abundantly clear that most businesses have an appreciation of the risks involved should some catastrophic event – such as a fire – lead to the subsequent loss of its premises or stock, but here the decisions are not so clear cut.

Security should also be considered as part of the solution, not just as a stand-alone service.

Linking insurance and security
At present, businesses that buy insurance for their property or assets tend not to see the link between insurance and security, and may not benefit from a reduced premium – even though they may have taken significant steps to reduce the risk of losses from theft and/or vandalism.

The only direct connection they might make is where their insurer flags it up (for example, where the insurance company insists on certain security measures being put in place prior to a policy being issued).

Unfortunately, under these circumstances this has had the effect of making security measures a 'grudge' purchase among end users. We would like to see a much more enlightened view of the contribution that security can make in reducing overall risks.

When businesses spend money on adopting effective professional security measures, they should benefit from that in terms of reduced insurance premiums. They should not have to pay excessively to insure against a risk when they have already spent money on minimising it. However, it may be that business itself needs to push for security measures to be recognised.

In other areas of business, the aim is to purchase products on the very best of terms. Insurance should be no different. If a business can show that it presents a lower risk to its insurer, it should then attract lower premiums.

When businesses spend money on adopting effective professional security measures, they should benefit from that in terms of reduced insurance premiums. They should not have to pay excessively to insure against a risk when they have already spent money on

On the other hand, insurance companies need to be assured that any security measures really are likely to be effective. Rather than just insisting that businesses conform to simple measures, such as having a 24-hour security presence on site, insurance companies should be prepared to look at service levels and adopt more sophisticated measures such that realistic discounts may be realised.

Measures could include: membership of the British Security Industry Association (BSIA) or the International Professional Security Association, ISO accreditation, an audited management plan and an agreed Service Level Agreement (SLA).

That does not mean that the insurance companies should be involved in specifying the SLA, but that they should look for evidence of a template of measures that could qualify for discount premiums, and which would then encourage their customers to think longer and harder about security.

Merely having a security presence is insufficient. End user organisations should be concerned about – and more involved with – the quality of the security provided.

To some degree at least, the insurance industry is already interested in these kinds of measures. For instance, the BSIA recently announced that it had developed a new security classification for access control systems in close liaison with the ABI ('Classified information', Security Management Today, November 2001, p53). While the ABI was reported to be interested in finding a means of specifying the security level of an access system as a condition of providing insurance (rather than necessarily as a way of encouraging businesses to improve their security measures in order to attract discount premiums), it nevertheless could be used in that way.

At the very least, it shows that the insurance industry is prepared to look beyond the most obvious – and most easily quantifiable – security measures as being relevant.

Operating in a competitive world
A more focused approach to security would also be beneficial for insurance companies themselves. Insurers operate in a competitive marketplace, and need to sell their products just like any other going concern. We would argue that insurers who give full credit for security measures adopted by business in the form of lower premiums will have, for a time at least, a new USP.

Don't forget that discounted premiums are not without precedence. In the domestic market, for example, they often offer 5% or even 10% discounts on contents insurance when customers fit fire alarms as an incentive to homeowners to protect their property. In addition, similar incentives based on the deployment of bona fide security measures could also be used to give an edge when it comes to marketing in the commercial arena.

At this point it's worth mentioning the effects of September 11 because they do have a bearing on the cost of insurance against other catastrophic – and even more general – risks. Estimates as to the final costs that the insurance will incur tend to vary, but some global estimates put the figure as high as a massive £28 billion.

Interestingly, 'This is Money' – a website run by Associated Newspapers – claimed in a recent article that even with the World Trade Centre losses the insurance industry has faced worse years in terms of losses due to catastrophes. However, there's no doubt that the worldwide re-insurance market has taken a huge hit. It may well be the case that losses have exceeded premiums. When that happens, insurers are forced to ramp up their premiums.

There can also be no doubt that insurance companies will now be paying closer attention to security precautions at every level – from perceived catastrophic terrorist threats through to the basic access control requirements of buildings.

Alternatives to insurance
There's a limit to the amount of insurance that can be offered in the worldwide market, and this limit seems to be coming nearer and nearer. Alternatives to insurance must be found such that we may limit the growth of premiums beyond acceptable levels.