Agency Operators: General Liability Insurance

[dhcp]

greetings all.

I am curious if you guys can provide me with some idea as to what an agency operator might pay monthly or yearly for general liability insurance with $300,000 to $500,000 worth of coverage. I do realize the cost of such coverage depends on many variables, such as number of personnel employed, primary focus of assignments, etc. Some states may not even have a requirement in place for such coverage, but mine does (Florida).

For the purpose of this thread, let's just assume it's a 5 man company providing only armed protection primarily to apartment complexes.

Thanks.

[Mr. Security]

Nathan Corbier is your man for this question.

[N. A. Corbier]

Nathan Corbier has some questions:

1. How's your resume look? Do you have experience in management of a security company? Supervision? The insurance company will ask for resumes of all partners. Do you have business management experience? You get to convince the insurance company that you're competent to run a company, a security company, and handle large sums of money.

2. You're not going to get GL insurance for what you're doing off the bat. Period. You're going after something that most insurance companies consider high risk. Putting armed guards in a residential area where they will most likely have to use force.

3. When you apply for GL insurance, you are a 5 man company who is completely unarmed, has no arrest authority, and who's sole purpose is to observe and report. Don't tell them the future - tell them the present. You don't have a B, so you don't work in apartment complexes. They will be more apt to insure someone who doesn't incur liability.

4. When you have your GL, and you get an armed contract, contact your insurance agent and get arrest authority riders, armed officer riders, less-lethal force riders, and the rest of it. Build on your GL policy, its lots cheaper.

We just went through this at NAPSOA PSG. Oh, and insurance companies talk with each other. You submit a quote with "We got rifles and shotguns and M16s and we're crazy like CIS," and they'll remember it.

Expect to pay about $2,000 dollar premium.

[dhcp]

Well, I appreciate your information. When you say expect to pay about a $2,000 premium, is that an annual estimate on your part?

Nathan Corbier has some questions:

1. How's your resume look? Do you have experience in management of a security company? Supervision? The insurance company will ask for resumes of all partners. Do you have business management experience? You get to convince the insurance company that you're competent to run a company, a security company, and handle large sums of money.

2. You're not going to get GL insurance for what you're doing off the bat. Period. You're going after something that most insurance companies consider high risk. Putting armed guards in a residential area where they will most likely have to use force.

3. When you apply for GL insurance, you are a 5 man company who is completely unarmed, has no arrest authority, and who's sole purpose is to observe and report. Don't tell them the future - tell them the present. You don't have a B, so you don't work in apartment complexes. They will be more apt to insure someone who doesn't incur liability.

4. When you have your GL, and you get an armed contract, contact your insurance agent and get arrest authority riders, armed officer riders, less-lethal force riders, and the rest of it. Build on your GL policy, its lots cheaper.

We just went through this at NAPSOA PSG. Oh, and insurance companies talk with each other. You submit a quote with "We got rifles and shotguns and M16s and we're crazy like CIS," and they'll remember it.

Expect to pay about $2,000 dollar premium.

[hrdickinson]

greetings all.

I am curious if you guys can provide me with some idea as to what an agency operator might pay monthly or yearly for general liability insurance with $300,000 to $500,000 worth of coverage. I do realize the cost of such coverage depends on many variables, such as number of personnel employed, primary focus of assignments, etc. Some states may not even have a requirement in place for such coverage, but mine does (Florida).

For the purpose of this thread, let's just assume it's a 5 man company providing only armed protection primarily to apartment complexes.

Thanks.

DHCP,

As Nathan advised, the underwriting decision is based on several factors. Most companies billing more than 1,000 weekly hours, pay based on a percent of estimated payroll (sometimes it is based on revenue as Chubb's Executive Risk product). If you have a clean client profile, little or no armed work, good loss history, etc., you can expect to pay somewhere between 1.0% to 3.0% for $500,000 to $1,000,000 of coverage.

Often those policies will be subject to audit. When the policy year is over, the carrier will audit your payroll and apply that percent to your ACTUAL payroll and subtract the premium you have already paid for that year. If your estimate was lower than your actual payroll, you will receive a bill for the difference, called an "Audit Premium".

Therefore, don't always think the premium is "fixed". Include that percent in all your pricing calculations for new contracts.

When you complete the application for liability insurance, don't forget that you are "marketing" your company to the underwriter. Include copies of your policies and procedures, officer handbooks, drug free workplace policies, etc. The more they get the idea that you, as an owner and/or COO have your act together, and are already trying to minimize your risk, the more they will lean in your favor.

Another tip, don't look at the questions as black and white. Don't be afraid to add footnotes. As an example, let's say you are located in Mississippi, a state that has no regulations whatsoever. And let's assume that you don't normally do a pre-employment drug test. When you get to that question, which calls for a yes/no answer, you can answer yes and add a footnote that says "yes, if required by the client"

I hope this helps,
Richard

[dhcp]

It certainly helps. I appreciate the information. I'm still a little confused because the company I am establishing will not have anywhere near 1000 man hours per week of work. In fact, I don't expect that we'll ever have more than 250 hours per week of billable work. From the beginning, I think I am going to pursue the state required minimum of $300,000.00 in GL coverage.

When you say 1-3%, I'm assuming that is an annual calculation. We plan to remain a small, loyal and extremely managable company. There of course will be risk associated with our assignments, as not only do we plan to accept strictly armed opportunities, but the possibility of injury is always present with any security position. It's obvious providing contracted security services to a night club and assumming bouncer type responsibilities has a lot more risk association than controlling access to a gated residential community.

Your responses are greatly valued. Thanks.

DHCP,

As Nathan advised, the underwriting decision is based on several factors. Most companies billing more than 1,000 weekly hours, pay based on a percent of estimated payroll (sometimes it is based on revenue as Chubb's Executive Risk product). If you have a clean client profile, little or no armed work, good loss history, etc., you can expect to pay somewhere between 1.0% to 3.0% for $500,000 to $1,000,000 of coverage.

Often those policies will be subject to audit. When the policy year is over, the carrier will audit your payroll and apply that percent to your ACTUAL payroll and subtract the premium you have already paid for that year. If your estimate was lower than your actual payroll, you will receive a bill for the difference, called an "Audit Premium".

Therefore, don't always think the premium is "fixed". Include that percent in all your pricing calculations for new contracts.

When you complete the application for liability insurance, don't forget that you are "marketing" your company to the underwriter. Include copies of your policies and procedures, officer handbooks, drug free workplace policies, etc. The more they get the idea that you, as an owner and/or COO have your act together, and are already trying to minimize your risk, the more they will lean in your favor.

Another tip, don't look at the questions as black and white. Don't be afraid to add footnotes. As an example, let's say you are located in Mississippi, a state that has no regulations whatsoever. And let's assume that you don't normally do a pre-employment drug test. When you get to that question, which calls for a yes/no answer, you can answer yes and add a footnote that says "yes, if required by the client"

I hope this helps,
Richard

[N. A. Corbier]

Well, I appreciate your information. When you say expect to pay about a $2,000 premium, is that an annual estimate on your part?

We were quoted... $2,000 ... a month. Yeah. Isn't that special? Obviously, a better rate was secured. Not my department, though, so my details on that rate are sketchy at best.

[dhcp]

We were quoted... $2,000 ... a month. Yeah. Isn't that special? Obviously, a better rate was secured. Not my department, though, so my details on that rate are sketchy at best.

I see.

Well I don't see where, from a premature standpoint, a 3 man company is going to pay $2000 a month for general liability insurance. Our operaiton is going to begin with only 3 managing members, all who will actively work for the company for the first 6 months while we stablize our interests and find comfort in the local market. Non-managing employees will not be hired for quite some time. We have already received potential contract job offers for about the average going hourly armed rate in the Tampa area.

Realistically, with a strict operating manual, I wouldn't see why GL insurance for this operation should run more than $5,000 a year. But any company who provides a quote of more than $10,000 per year, based off "present" circumstances as you suggested, will be literally laughed off the phone. In fact, I will actually go down to their office (if local) and laugh my way into their building only to continue laughing myself right back out of it. Perhaps when you have 50 plus associates working for you, you incur $2k-$5k a month liability insurance premiums. But with 3 owners manning the company, a clear and concise yet simple business plan that indicates we intend to remain small yet managable, and one very defined operating manual, I can't see how it could cost us $24,000 per year.

A few websites I've read concur with hrdickinson that a rough calculation of what GL insurance will cost is between 1 and 3% of the coverages sought. At $300,000 worth of coverage, the bare minimum, even on the high end that's roughly $9,000 per year, far less than $2,000 per month.

As far as a weekly payroll calculation is concerned, just as hrdickinson had discussed, we realistically can't handle any more than 252 hours per week with our starting staff of 3. I'm sure the quote you were handed down covers an enormous amount of employees compared to our operation, and many many more contractual hours per week. There's just no way it's going to cost us $2,000 per month.

I plan to call around to some agents this week to probe for more details without divulging anything that might "penalize" us in the future when we're ready to purchase the policy.

[N. A. Corbier]

Actually, it was because we quoted:

Mutiple states, Arrest Authority in 2, All Armed Officers, Patrol Vehicles and Section 8 housing. The Section 8 housing almost killed us with a "refusal to cover." Don't get one of those, whatever you do. It means that they consider you so high a risk that you're out of the insurance pool.

[dhcp]

when you say arrest authority, thats a little confusing to me.. because it's the government and common law that grants detention rights.. i mean i realize insurance companies can invalidate or revoke your coverage if they werent informed of such an intended practice prior to an arrest being executed.. but you wouldn't be working out of legal boundary by doing so, depending on your state and the crime committed of course.. so its important to maintain a policy where arrest intent is stated, at some point anyway..

roughly, how many employees are covered by the policy quote for $2000 you received, and how many contract hours do you estimate are worked per week under that quote?

thanks for the info and your help.. much appreciated

Actually, it was because we quoted:

Mutiple states, Arrest Authority in 2, All Armed Officers, Patrol Vehicles and Section 8 housing. The Section 8 housing almost killed us with a "refusal to cover." Don't get one of those, whatever you do. It means that they consider you so high a risk that you're out of the insurance pool.

[hrdickinson]

It certainly helps. I appreciate the information. I'm still a little confused because the company I am establishing will not have anywhere near 1000 man hours per week of work. In fact, I don't expect that we'll ever have more than 250 hours per week of billable work. From the beginning, I think I am going to pursue the state required minimum of $300,000.00 in GL coverage.

When you say 1-3%, I'm assuming that is an annual calculation. We plan to remain a small, loyal and extremely managable company. There of course will be risk associated with our assignments, as not only do we plan to accept strictly armed opportunities, but the possibility of injury is always present with any security position. It's obvious providing contracted security services to a night club and assumming bouncer type responsibilities has a lot more risk association than controlling access to a gated residential community.

Your responses are greatly valued. Thanks.

DHCP,

I will try to get you an informal quote based on your parameters. However, does 250 weekly hours really make sense? Even if you assume a gross profit of 20% and an average bill rate of $16.00, that leaves you only $800 a week to pay all your fixed expenses, including rent, communications, postage, office supplies, software, cost of working capital, and your salary as Owner/ Manager. Usually the breakeven point is more like 1,000 hpw. I will be glad to discuss this with you. Give me a call at 281-251-9168.

Richard

[dhcp]

hrdickinson,

First, I want to personally thank you for being so helpful to me. My appreciation also extends outward to every one else who has contributed to this thread. You guys have been great.

Now as far as whether or not it's "worth it", I can offer only one response, absolutely. Rest assured that our business model is sound and our approach is valid. There are many things about our business model, and position in general, that we can not allow you to understand. With all due respect, I'm sure every one here realizes the importance of such privacy.

But to give you some idea how the dynamics of our business might differ from your every day security agency, let me say this. Take for example your ordinary office related expenses. Securing a physical location and principle office isn't cheap. Fortunately for us, it is. I operate another successful business of a different industry out of the office we intend to use for our security agency. Because the business I have already established uses the office passively, there is no potential for conflict of interest to occur. That right there eliminates a huge monthly expense. My other company has supported the expense of the lease for several years, and it will continue to do so with or without carrying our security agency. Perhaps down the line I will appropriately subdivide the lease expense between both entities.

Secondly, from birth, our agency will be staffed with only 3 employees who all happen to be managing members of the company. Every individual plans to and wants to actually work in the field. We're all anxious to start building relationships with clients. There is no better way to do this then to personally work some of the first contracts we receive. As time progresses and the company matures, our physical site involvement will be reduced and eventually eliminated. This means we will be receiving a generous wage from the contracts we acquire. Again with all respect intended, you may ordinarily pay an armed associate $10 per hour to work a contract that pays you $15 per hour. Obviously, we are not going to work for the same wage we would pay 19 year old Joe who just obtained his security license yesterday. The company does obviously need to establish net worth and it most certainly will, once things stablize. Another obvious benefit is that we choose how many hours we will work per week. I think every one would agree that three full time personnel can responsibly manage two full time contracts. I am making a personal committment to this business. There is the possibility that I may even work a site 30 days straight. Overtime is of no significance primarily because of ownership interests, but also because legal accounting manipulation can ensure time and half isn't imminent. We all know that overtime pay will destroy the potential earnings of any contract which is why every security company wishes they did not have to pay it. After all, lack of coverage isn't the clients fault or responsibility. With us, if we choose to work 70 hours per week, then so be it. Overtime pay isn't necessary and will not be a reality for any of us.

In any event, there are positive and negative properties of every thing you do in life. We have carefully studied the security industry for the past year, and have cautiously weighed our financial risks. In fact, we believe the general focus of our business model minimizes such risk itself. All of us have worked in the security industry for many years, including private or in-house and contract fields. I also personally have extensive state certified law enforcement training as it was my interest at one time to become a police officer. Pursuit of that career quickly dwindled when I began to understand the amount of court time involved with their jobs. Paid or not, I'm not interested in spending a good portion of my life behind a stand, nor am I interested in attending invests on a weekly basis. That is what influenced me to establish a security agency.

Our company will never obtain a status like CIS or Wackenhut, and quite frankly, we don't want it to. We will take great pride in remaining small, manageable, loyal, dedicated and professional. At this point, we have capped our potential staff growth at about 25 associates. We don't expect to reach this ceiling for at least a year, possibly two. We will not begin hiring anyone until six months after our initial contract was awarded.

So while 250 hours may seem like a hopeless venture to you, it's without a doubt a golden opportunity to us. Even with GL insurance costs, individual medical policies that we all plan to purchase, and the general costs associated with doing business, we estimate a $3k monthly income per associate after individual tax assessment. This is calculated under the pretense of managing only (2) contracts at 10 hours per day/night 7 days per week. Should our calculation be incorrect, and let's say our potential income ends up being $500.00 less per month than what we expected, it's still worth it. Because we are investing into our future and the future of an agency that I know will eventually prevail. Size isn't always the key to market dominance. It helps, but I think in many cases, it plays a dual role as bad karma.

In the above example, we have also allocated enough margin to cover a $10,000 per year general liability expense. While I hope the costs are much less, and I expect them to be, we are prepared to pay $10,000 at the most. Should every quote, formal or informal, exceed $10,000, then it's back to the drawing board and we may just scrap the idea all together. I do not like insurance and I do not like insurance companies. I feel insurance in general is legalized fraud and that the would be criminal practice is supported by governments worldwide. If you are an insurance agent, it is not my intent to insult you. I just do not like the requirement for coverage and I do not like the way insurance companies operate. They can never accept the risks they underwrite. Instead, they offset them by raising premiums. Insurance is a financial gamble but they refuse to acknowledge that.

You know, people say that you can't reinvent the wheel. But I honestly believe that if done correctly, you certainly can.

Thanks agian folks.

DHCP,

I will try to get you an informal quote based on your parameters. However, does 250 weekly hours really make sense? Even if you assume a gross profit of 20% and an average bill rate of $16.00, that leaves you only $800 a week to pay all your fixed expenses, including rent, communications, postage, office supplies, software, cost of working capital, and your salary as Owner/ Manager. Usually the breakeven point is more like 1,000 hpw. I will be glad to discuss this with you. Give me a call at 281-251-9168.

Richard

[Guest]

Pursuit of that career quickly dwindled when I began to understand the amount of court time involved with their jobs. Paid or not, I'm not interested in spending a good portion of my life behind a stand, nor am I interested in attending invests on a weekly basis. That is what influenced me to establish a security agency.

If you plan to make as many citizen's arrests as you claim you will end up in court more often than you seem to think. Whether the time spent is on the witness stand or behind the defendant's table is another story.

[dhcp]

I'm sorry, but I don't recall stating anywhere in my posts that I was planning on making a high frequency of citizens arrests. Our operating manual will clearly outline the times of distress when detention and an arrest is necessary. We don't plan to encounter those situations on a daily basis, as no security officer would.

And clearly, I understand that during the course of such arrest, there is a some probability we will end up in court. But if our policy manual is well written and properly followed, I can promise you that any suit against us will result in an immediate counter suit being filed against the plantiff making it totally worthwhile to be in court, to defend our actions, defend our image and integrity, and seek restitution for damages caused by such a frivilous claim.

Thanks for your concern but I really think it's a bit out of context.