Suppose you walked into a store to look for a new television. If the store only carried one brand, would you shop there? Of course not, but that’s just what today’s insurance behemoths want you to do when you buy insurance.
With an abundance of information just a few key strokes away, today’s consumers demand choice. From automobiles to zucchini, consumers do research online before they make a purchase. Today’s policyholders no longer accept a single company quote. It’s hard to satisfy this consumer demand if you’re an agent who can only offer one product. It’s why the era of the captive agent is coming to an end. Only independent agencies that “meet” their customers online by leveraging their customers’ desire for information and choice will succeed.
The rise of digital media—the web, social media, the smartphone and other mobile devices—has leveled the playing field and even tilted it toward independents. Independent agents can now compete against the industry’s brand behemoths by making their brand even more powerful in their area. They can become local brand behemoths.
Digital tools enable you to provide a better experience to existing clients. Online lead generation allows you to more efficiently find new clients.
Improving customer experience
In a commoditized industry like insurance, the only way you can differentiate yourself is to provide excellent customer service. In the digital age, that means providing your customers with the opportunity to interact with your agency whenever and however they want. From policy changes to evidence of insurance, customers today would rather do things themselves online than have to wait to call your office when it’s open.
One of the most surprising things is how much people love self-service. Surveys show that companies of all types, including insurers, consistently get better service scores when they let consumers manage their account themselves.
Does your website allow customers to make policy changes, track their claim, get a quote or review their policy limits? Consumer tastes also require that your website be mobile-compatible. The smartphone has replaced the computer as the device of choice for consumers. A mobile-compatible site must be clean, because smartphone screens are small. Users must be able to navigate and read your site quickly on a smartphone. Is your company’s website easy to use on a smartphone?
Your website can’t be static and one-dimensional. People don’t want to read gobs of copy online. Your site should give visitors interactive experiences. For instance, display the icons of the companies you represent instead of listing them.
Attracting new customers
Use online resources to expand the reach of your marketing efforts.
LinkedIn provides a great example. Start by identifying people on LinkedIn whom you are connected to indirectly (i.e. through an existing contact but not directly) or are members of the same business group as you. These are your LinkedIn prospects. Next, go through your existing business network and identify a service provider like an accountant, photographer or other small-business owner. Ask if they would be willing to provide a discount to customers you refer to them. If they agree, send an email to your prospects identified from LinkedIn letting them know they can receive a discount. This creates a win-win for both of you.
Here’s a real-life example: I received an email from an executive coach introducing herself and offering me a 75% discount on professional executive photographs. All I had to do was contact the photographer, mention the promotion and schedule a time for my photo shoot. At the end of the email, the executive coach asked me to add her to my network on LinkedIn. While I didn’t need a professional photo taken, I was intrigued by this online joint venture.
It turns out that one of the executive coach’s referral sources is a professional photographer, and they created a photo day for the executive coach’s clients and prospects. The photographer could give a deep discount because he only had to set up once for all of the photos that day.
Thirty people set up appointments. Existing customers of the executive coach were impressed with the value she brought in addition to her coaching. Prospects were introduced to the executive coach in a positive way – you just saved me a lot of money and introduced me to a quality photographer. The executive coach attended the whole day and used the time in between photo shoots to introduce herself or reacquaint herself with past clients. It was a win-win situation for both the coach and the photographer.
No one gets excited about a birthday card from his agent. Instead, how about giving away a mobile app so your business can stay top of mind? An app that gets your name on a client's phone is a great way to stay in touch—and provide something of real value.
Facebook, Twitter, Tumblr and more….
You need to be on social media. Although engaging with social media takes time, what you learn online provides you with valuable customer insights. It’s like getting the questions to a test in advance. You have a real advantage.
Social media isn’t just about following people. Post or tweet information about how to prepare for catastrophes unique to your area so people can prepare for them. The more you engage digitally, the more relevant you become online.
You’re probably thinking: “I don’t have time for this!” You’re right! Find someone who uses these tools everyday – a student or a young person in your office and put that person in charge.
All the pieces have fallen in place for independent agents. Seize the digital moment now and prosper!
Instead of just viewing a video of what actually caused the alarms, the central station operator can use the cameras to attempt to see why there was an alarm. In 2004, when the industry standard was created, video verification was reserved for specialized applications. Equipment was expensive and cumbersome to monitor. Nearly a decade later, technology has changed, and video verification is moving mainstream.
IP cameras and specialized camera/sensor devices are now well under $100 and easy to install. The last piece of the puzzle to fall into place was driving down central station monitoring costs. Over the past couple of years, central stations have developed affordable video verification processes that fit the mainstream alarm business model. These central station processes can be applied to a broad range of hardware, from IP cameras equipped with analytics to specialized sensor/cameras designed specifically for video verification. Third party central stations are offering dealers video verification for as little as $5 over what they charge to monitor a traditional alarm.
Contrary to common perception, video verification’s value is not primarily to reduce false alarms. From the property owner’s perspective, false-alarm reduction is more a side effect that “reduces a negative” rather than creating value with additional security. Consumers looking to purchase “security” want the best security they can afford, and they typically equate this with fast police response. Video verification delivers faster police response. Because of historical issues, traditional alarms typically receive a “Priority 3” response from law enforcement. In contrast, video verified alarms typically receive a “Priority 1” response and are treated as “in progress” calls by responding officers. The difference in response times between a 1 and 3 is significant. In Fairfax County, the affluent area around Washington, DC, a video-verified alarm receives response more than 12 minutes faster than a traditional alarm. From a property owner’s perspective, a lot can happen in 12 minutes in a commercial burglary or home invasion.
|Jurisdiction||Video Verified||Traditional Alarm||Response Differential|
|Chula Vista, CA||5:05||19:18||14:13|
|Fairfax County, VA||6:00||18:02||12:02|
With reductions in municipal budgets affecting many jurisdictions across the US and Canada, law enforcement has downgraded response to non-verified alarms in an effort to save money. Sometimes this means a “broadcast and file” policy, where the alarm is broadcast over the police radio and officers can respond if they have nothing more important to do. Sometimes, police refuse to respond to non-verified alarms at all. But these same financially stressed jurisdictions all continue to respond to video verified alarms.
The benefits of video verification extend beyond priority response. A well-publicized court case recently sent shock waves through the alarm business when an industry icon was forced to pay a multimillion-dollar judgment to a woman who was assaulted after she entered her home. The alarm system had worked. The motion detector triggered at 10:00 AM, and the central station, after failing to reach the owner, dispatched the police. They found nothing amiss. Throughout the day, the motion sensor sent in four additional alarms, but the central station was unable to reach the owner on these, as well. After this rash of alarms, police told the central station that they would stop responding unless the keyholder met them at the home. That evening, when the owner returned home after work, she was assaulted by an intruder who had been inside her home throughout the day. This horrific incident simply would not have happened if the central station had been able to see the intruder who triggered the alarms. Video verification means greater security because the central station operator becomes a remote eyewitness to the alarm event.
When the industry standard for video verification was created in 2004, self-surveillance on smartphones was not even on the radar. Apple’s first iPhone did not even hit the market until 2007. The early video verification process required the central station operator to manually access a camera/DVR when an alarm triggered and download the video for review. This often required working with static IP addresses, firewalls and video management systems that were isolated from the central station automation software that ran the business. All of this required specialized operators who were trained to manage video and operate multiple video systems remotely. Technology changed all this. Video verification is now done by the typical operator in the central station. Central station automation like MAStermind, Bold, Dice, MicroKey, SIMS, and others have integrated video verification into their standard alarm processes. In addition, there are third party solutions like I-View Now that enable any central station to do video verification without changing their automation software. These central station solutions work with a wide variety of hardware, from IP cameras to specialized camera/sensors devices designed specifically for video verification. Just as smartphones and mobile apps changed the lives of consumers, the central station solutions for video verification have made monitoring video alarms simple and inexpensive for the typical alarm dealer.
Self-surveillance and home automation have created a paradigm shift in the alarm business affecting even the most basic alarm offering. Declining video hardware and monitoring costs mean that video verification now fits the competitive business model of $99 down and a multi-year contract that finances the hardware/installation. Commercial applications have been the first to embrace video verification. The newest generations of hardware and monitoring services have finally reached the pricing level necessary to move into the competitive residential market.
The alarm business is built upon a partnership with insurance industry and law enforcement. The insurers encourage their policy holders to install alarm systems to reduce claims and prevent loss. The alarm industry depends upon law enforcement to respond to their alarms and protect their customers in the event of a burglary or intrusion. Video verification is already strengthening this partnership. The insurance industry has taken notice of priority response and what it means to them in terms of reduced losses. In January 2013, Pharmacists Mutual Insurance published the results of a five-year study that linked arrest rates and losses experienced to police response times. Other major insurance companies like Hanover, CNA, Allstate, and State Farm are working on updating policies to encourage their policy holders to move to video verification. While this is a slow process, the insurance industry has begun to turn the rudder, and the ship is in motion.
In the past decade, video technology has fundamentally changed law enforcement with cameras in patrol cars and on highways and even portable cameras worn by officers. Law enforcement depends upon video, and video verified alarms are another step in this direction. While law enforcement understands video verification means fewer false alarms, they also know that video verified alarms mean more arrests. Officers have always been motivated to “catch the bad guys,” and video verification helps make this happen.
As Chief Steve Dye of Grand Prairie, TX, explained to the IACP committee on Community Policing in a recent presentation, “From our perspective, we see no difference between an eyewitness calling to report a crime and a central station operator calling to report a crime they have seen on video. In fact, the fact that a video exists of the actual event could mean the central station call could even be considered stronger.” Chief Dye is promoting priority response to encourage his citizens to install video verified alarms to help him in the battle against property crime. It is making a difference. Currently, the response time for a video verified alarm in Grand Prairie, TX is less than two minutes.
The sensational news of Jeff Bush, swallowed by the earth while he slept, has been widely reported by the media.1 Such dramatic incidents receive a great deal of attention, likely because they are so rare. Sinkholes, however, are not rare. They do not usually threaten lives, but in Florida they have often threatened insurance companies' balance sheets, endangering their profitability and — in at least one case — their solvency.
First we must distinguish between how the terms “sinkhole” and “catastrophic ground collapse” are used in insurance in Florida. According to Florida statutes, “'Sinkhole' means a landform created by subsidence of soil, sediment, or rock as underlying strata are dissolved by groundwater.” A “catastrophic ground collapse,” by comparison, exists when all of the following four criteria are met:
- The abrupt collapse of the ground cover;
- A depression in the ground cover clearly visible to the naked eye;
- Structural damage to the covered building, including the foundation; and
- The insured structure being condemned and ordered to be vacated by the governmental agency authorized by law to issue such an order for that structure.2
Sinkholes are fairly common in Florida and even ubiquitous in some areas. But what happened to Jeff Bush was a catastrophic ground collapse, and that's rare, even in Florida.
Much of the subsurface geology in Florida consists of limestone or dolomite and both are susceptible to gradual erosion when exposed to acidic water, which arises from a chemical reaction between rainwater percolating through the soil and decaying vegetation. This erosion can produce underground voids that are not visible on the surface and these voids will expand, usually very slowly. This slow expansion leads to a subsiding surface, which can cause cracking and other damage to structures. Very occasionally, a large void will lead to sudden collapse of the surface above it.3 A well-known historical example of this is the Winter Park sinkhole.4 A more recent example is the sinkhole into which Jeff Bush's house collapsed.
Although the process that produces sinkholes occurs naturally over tens of thousands of years, it can be accelerated by human-induced depletion of underground aquifers. In Tampa, the problem has become so significant that one of the first desalination plants in the United States has been built to reduce the use of underground water supplies.5 The groundwater depletion that has resulted from increased water use has in part contributed to extremely frequent sinkholes in Pasco and Hernando counties.6
Initial Legislative Efforts
In 1981, Florida passed a law mandating that insurance companies cover the sinkhole peril as part of home insurance.7 By 2006, the sinkhole loss ratio in Hernando County for Citizens Property Insurance Corporation, an insurer created by the state for those who cannot acquire coverage elsewhere, had reached 242%. The average sinkhole claim for Citizens was about $139,000.8 Claims were often not for catastrophic ground collapse or even damage that affected the load-bearing capacity of the structure, but were cosmetic in nature. There came to be a widespread perception in the industry that marginal claims were being paid out, partially as a result of aggressive solicitation of insureds by public adjusters.
In response, Florida lawmakers passed legislation that still required insurers to offer sinkhole coverage, but allowed policyholders to exclude it. The territories that Citizens used for rating the sinkhole peril were the same as it used for other perils — generally counties divided into a coastal region and an inland region. This method did not adequately capture the differentiation in sinkhole risk and once policyholders were allowed to exclude sinkhole coverage, those who believed they were at lower risk chose to do so.
The losses for the remaining, higher-risk insureds had to be spread over a smaller amount of premium, pushing the loss ratio up, and causing Citizens to file for rate increases. Those rate increases encouraged more low-risk insureds to opt out of sinkhole coverage, creating a self-reinforcing cycle of adverse selection. The sinkhole loss ratio, especially in the area of the state susceptible to sinkholes, increased. By 2009, it had reached 683% in Hernando County. The number of sinkhole claims for Citizens in Hernando county alone had increased from 186 in 2006 to 520 in 2009 — nearly tripled — while premiums to cover them had decreased from about $9.2 million to about $6.0 million.
Private insurers began withdrawing from the market in Pasco and Hernando counties entirely, and the share of the market for Citizens increased rapidly. Between 2008 and 2010, the number of policies Citizens wrote in Hernando County increased by 50%.9 HomeWise Insurance Company was forced into liquidation in 2011, despite no hurricanes affecting Florida since 2005, because of sinkhole claims.10 The insurance of damage from sinkholes led to an insurance crisis in Florida.
Although there had been several previous rounds of legislation to address the crisis in 2005, 2006, 2007, and 2009, the crisis only worsened.11 Another bill, SB408, was passed in 2011. An analysis performed by Insurance Services Office (ISO) on behalf of Citizens estimated that this bill would reduce losses by about 54.7% based on several changes:12
- The majority of the expected savings came from a change in definition; instead of covering “physical damage,” sinkhole coverage would now cover “structural damage.” The report estimated the impact of this change in definition by reviewing a random sample of closed claims and estimating what the loss would have been under the new definition.
- Previously, many policyholders did not use the proceeds they received from their sinkhole claims to repair damage, but instead used it to pay off their mortgages or for some other purpose. In a sample of claims from HomeWise, for example, only 27% of insureds used the money to make repairs.13 SB408 requires that loss payments be used to repair sinkhole damage based on the specifications of an engineer's report.
- When the insured uses a public adjuster, claims for which a sinkhole is not confirmed have much higher losses than when the insured does not use a public adjuster. In the analysis performed by ISO, it was determined that the losses for claims of Citizens with no confirmed sinkhole activity were 140% higher when a public adjuster was involved. SB408 limits public adjuster compensation to reduce the incentive to inflate sinkhole claims.14
- SB408 excludes sinkhole damage to appurtenant structures, such as driveways, sidewalks, decks, or patios.
- Policyholders with a previously denied sinkhole claim were granted the right to sinkhole testing at the expense of the insurance company. Under SB408, the policyholder must pay part of the cost of this testing, which is reimbursed if the testing demonstrates that a sinkhole exists.
In addition to these provisions, companies can exclude sinkhole coverage until an inspection is performed. If there is evidence of prior sinkhole activity, they can exclude the sinkhole peril from coverage. They can also now require a sinkhole deductible equal to 10% of coverage A for HO-3 policies.15
The cumulative impact of these reforms and improvements in underwriting is unclear. Although the reaction in the industry has been positive, it has been less than two years since SB408 was implemented and it will take time to see if it results in a real decrease in costs. In 2006, SB1980, another sinkhole reform bill, was passed and was expected to produce up to 14.4% savings, according to a report from Deloitte commissioned by the Florida Office of Insurance Regulation.16 As it turned out, this was just before a rapid escalation in sinkhole costs. It is very difficult to predict the impact of legislation, and while there is a lot of favorable anecdotal evidence, it is probably too soon to say for certain whether the Florida sinkhole crisis is over.
What Insurers Can Do To Manage Their Risk
Excluding sinkhole coverage and offering it as a buyback with a 10% mandatory sinkhole deductible after an inspection is one of the most important tools that insurers currently have. However, the dramatic example of adverse selection that occurred in recent years in Pasco and Hernando counties should serve as a reminder of the importance of risk differentiation. Adverse selection occurs because policyholders or competitors have more information about an insured risk. Insurers can reduce this risk by adopting granular rating plans that align the premium charged as closely as possible with the expected loss.
Because insurers based their calculations on territories designed for wind risk — consisting of a coastal and inland region — they failed to adequately differentiate risk within these counties based on underlying geology, changes in underground aquifers, and claim patterns. Further, since sinkhole claims are relatively uncommon, albeit very severe, companies often lack credible data, which encourages them to utilize territories that are not homogenous.
SB408 has diminished the sense of crisis in the industry and creates an opportunity for insurers to get ahead of the risks they face. Companies are now able to charge a separate premium for the sinkhole peril and they should begin utilizing territories that better reflect the variation in the underlying risk from that peril. Doing so, coupled with other important risk management strategies, will decrease the likelihood that they will have the sort of unfavorable experience that has been so damaging to the industry in recent years.
Although Florida has by far the highest rate of sinkholes in the United States, they also occur in many other parts of the country, such as Alabama, Kentucky, Missouri, Pennsylvania, Tennessee, and Texas — anywhere, in fact, where acidity erodes subsurface limestone. About 20% of the United States is susceptible to sinkholes.17 Less than two months after Jeff Bush was swallowed by the earth, a sinkhole in Chicago devoured three cars.18 Insurers would be wise to review their policy language and the law in all states where they have potential sinkhole exposure and consider steps to address this exposure. The most dangerous peril for any insurer is the one they did not realize they were covering.
1 New York Times (March 2, 2013). Crews halt effort to find man lost in Florida sinkhole that swallowed his room. Associated Press. Retrieved April 18, 2013, from http://www.nytimes.com/2013/03/03/us/florida-sinkhole-growing-as-engineers-investigate.html.
2 Section 627.706(2)(a), Florida Statutes.
3 Beck, B.F. & Sinclair, W.C. (1986). Sinkholes in Florida. Florida Sinkhole Research Institute, Universityi of Central Florida. Retrieved April 18, 2013, from http://publicfiles.dep.state.fl.us/FGS/FGS_Publications/FGS Library Documents/SinkholesInFlaAnIntroBeck1986a.pdf.
4 In May 1981, the Winter Park sinkhole in Central Florida swallowed a house, five Porsches, and part of the city's swimming pool. The sinkhole eventually measured 350 feet wide, 75 feet deep and had caused $4 million dollar in damage. Orlando Sentinel (November 13, 2013). Looking back at Winter Park's famous sinkhole. Retrieved April 18, 2013, from http://articles.orlandosentinel.com/2012-11-13/news/os-fla360-looking-back-at-winter-parks-famous-sinkhole-20121113_1_sinkhole-orlando-sentinel-winter-park
5 U.S. Geological Survey (November 2003). Ground-Water Depletion Across the Nation. Fact Sheet 103-03. Retrieved April 18, 2013, from http://pubs.usgs.gov/fs/fs-103-03/.
6 U.S. Geological Survey (January 2013). Groundwater Depletion. Retrieved April 18, 2013, from http://ga.water.usgs.gov/edu/gwdepletion.html.
7 Florida Senate (December 2010). Issues Relating to Sinkhole Insurance. Interim Report 2011-104. Retrieved April 18, 2013, from http://publicfiles.dep.state.fl.us/FGS/WEB/sinkholes/FlaSenateSinkholeIssues.pdf.
8 Florida Senate, ibid., p. 18.
9 Florida Senate, ibid., p. 26.
10 Florida Dept. of Financial Services (November 18, 2011). Notice of Liquidation of HomeWise Insurance Company. Retrieved April 18, 2013, from http://www.myfloridacfo.com/agents/industry/news/hwicliq.htm.
11 Florida Senate, ibid.
12 Ericksen, P. (July 19, 2012). Citizens Property Insurance Corporation: Senate Bill 408 Sinkhole Analysis. Insurance Services Office. Retrieved April 18, 2013, from https://www.citizensfla.com/about/mDetails_boardmtgs.cfm?show=PDF&link=/bnc_meet/docs/419/07AH_Citizens_SB408__Sinkhole__Analysis.pdf.
13 Florida Senate, ibid.
14 Ericksen, ibid.
15 Section 627.706 (1)(b), Florida Statutes. Retrieved April 18, 2013, from http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0600-0699/0627/Sections/0627.706.html.
16 Florida Office of Insurance Regulation (September 7, 2006). Press release: Sinkhole factor adoption will lead to consumer savings. Retrieved April 18, 2013, from http://www.floir.com/PressReleases/viewmediarelease.aspx?id=1480.
17 U.S. Geological Survey (March 11, 2013). The Science of Sinkholes. Science Feature. Retrieved April 18, 2013, from http://www.usgs.gov/blogs/features/usgs_top_story/the-science-of-sinkholes/.
18 Jamieson, A. (April 18, 2013). Sinkhole swallows three cars on Chicago's South Side. NBC News. Retrieved April 18, 2013, from http://usnews.nbcnews.com/_news/2013/04/18/17810648-sinkhole-swallows-three-cars-on-chicagos-south-side.
Copper theft presents a significant challenge for loss control.
Unlike other property crimes where “recovery” goes a long way toward mitigating the loss, such as the recovery of a stolen car in an auto theft, the recovery of the stolen copper seldom impacts the size of the claim.
Copper theft is different because the damage done to a building stealing a few hundred dollars' worth of copper can cost insurers tens of thousands of dollars to repair. The typical copper theft claim involves the damage done ripping wires and plumbing out of walls or the coils from a rooftop HVAC system. In vacant buildings, thieves target water lines and sprinkler systems as well as the electrical wiring. Once a vacant property has been hit, thousands of dollars must be spent to bring it back up to code before it can be occupied. It is this “collateral damage” that makes copper theft claims so expensive to an insurance company.
The key to reducing copper theft claims is prompt police response. The faster law enforcement arrives, the less time thieves have to damage the property. Faster police response is what wireless video alarms deliver and why they are a valuable tool for loss control against copper theft.
Copper theft has impacted insurance companies across North America, becoming a mainstream problem covered by television news. The following reports from television news underscore much of what this article is attempting to communicate — a new paradigm to mitigate risk and reduce claims impacting the real world from Virginia to Arizona.
Construction crime is a close cousin to copper theft and has been a black hole for risk management with few affordable solutions. The nature of construction risk is temporary and this means that wired surveillance cameras and alarm systems are simply too expensive and cumbersome to install to make them cost-effective.
The technology challenges are significant: in addition to limited budgets there is often no power, no phone lines, and no easy access to internet. Policy holders do not want to spend large amounts of money for temporary infrastructure that has no value after the job is done. For construction, human guarding is the most obvious approach, but it is beyond the budgets of many job sites. With guarding cost prohibitive, from a loss control perspective there have been very few affordable options for mainstream policy holders to protect their projects. Construction remains a problem child for many insurers who are forced to raise deductibles and implement exclusions to make construction profitable.
The following newscast from Buffalo, New York describes the challenges of securing a construction site and successes found with wireless video alarm systems.
While human guards have become too expensive and unreliable for many sites, technology is improving and loss control has a new tool to secure construction sites. Portable wireless video alarms give loss control professionals an affordable tool to deliver police response to a job site before the damage occurs. These new wireless camera/detectors (called MotionViewers) sense an intruder and send a short video clip of the incident over the cell network to a central monitoring station for immediate review and police dispatch and priority police response.
The immediate review/response with a monitored video alarm has proven more effective than human guards as the sensor/cameras are installed in multiple points across the job site to detect and report any activity. The crucial factor in reducing claims for copper theft is immediate police response, and video verified alarms make all the difference — the monitoring central station operator is a virtual eyewitness to the crime.
Police treat a video verified alarm as a crime-in-progress — they respond faster and they make arrests. Case studies on video verified alarms have arrest rates of over 50%. One construction site in Arizona had 40 arrests over four months on a single site. Arrests make a difference because one arrest prevents an additional 30 crimes — copper theft is typically done by habitual thieves who target construction sites or vacant property.
To be affordable and effective, the camera/sensors must be easy to install, without the cost of trenching cables and running wires. Power is a challenge as many construction sites have only temporary power provided by generators during working hours. Many vacant building have no power at all.
The wireless Videofied alarm systems need no infrastructure to secure a site. They operate for months or even years on batteries, communicating over the cell network to the central station. These portable MotionViewers are more effective than fixed cameras because they can be moved to protect the assets on a job site as the project evolves. Portability is important because construction theft is often an inside job by a subcontractor familiar with the delivery and location of expensive materials or assets — and they know the locations of fixed cameras and how to avoid them. In contrast, magnetic mounts on the wireless MotionViewers enable the job supervisor to move the cameras, placing them on steel studs and tool cribs at the end of the day to protect what is most at risk.
Wireless video verified alarms for outdoor applications mean that loss control professionals have an effective tool to fight copper theft that is affordable enough for implementation by their policy holders. For more information visit www.videofied.com.
Once upon a time, alarms detected burglars, officers responded and police made arrests. Underwriters depended on “loss control with a badge.”
In fact, underwriters created the security industry in the early 1900s when they wired a problem Boston bank that then alerted the nearby telegraph office of a burglary. Police arrested the burglars and prevented a large claim.
Underwriters built upon this success and pushed policy holders to install burglar alarms because they worked — police made arrests and lowered claims. The alarm/police response concept worked so well that underwriters soon mandated that all high-value policy holders such as banks and jewelry stores install UL certified intrusion alarms before issuing a policy. They also created alarm discounts in their policy contracts to encourage their other commercial and residential policy holders to install burglar alarms.
This historic police/alarm/insurance model boosted profits through the 1970s, but the partnership lost its value, deteriorated and died. Before we resurrect this partnership and reconsider the “alarm discount,” we need to understand what happened.
What caused “loss control with a badge” to fade?
From the underwriter’s perspective, the unprecedented bull market of the 1980s meant that profitability shifted away from loss control to a focus on collecting premium and driving investment-income. At the same time from the alarm perspective, the digital phone dialer appeared and opened a new mass market for inexpensive burglar alarms. The installed base of traditional alarm systems exploded into the tens of millions, creating a tsunami of false alarms for law enforcement that eroded value. With a staggering false alarm rate of over 98%, police now considered traditional alarms a waste of resources and response decayed. Officers no longer made arrests as alarm companies focused on selling “deterrence” instead of apprehensions. From the police perspective, they simply no longer cared.
The situation degraded to the point that major cities like Las Vegas, Salt Lake City, and Milwaukee stopped responding to traditional burglar alarms altogether. This trend towards declining alarm response continues to be an issue. The police/alarm/insurance partnership had atrophied and neither the police nor underwriters saw value in traditional burglar alarms.
Before we consider the solution, let's look at how traditional alarms are viewed by police. When hit with budget cuts, Detroit Police joined the growing trend and decided to end response to traditional alarms because there simply weren't enough officers to go around anymore. Traditional alarms no longer delivered.
On August 16, 2011 in a Detroit Free Press feature article, Detroit Police Chief Ralph Godbee Jr. declared that any triggered alarm will require a verified response before dispatch sends a cruiser to the location. Godbee cited a US Department of Justice report supporting verified response as a reliable practice towards eliminating waste and improving public service. Abandoning traditional alarms, Chief Godbee sees video verified alarms as the solution to more effective policing — using video to verify that the alarm is an actual crime. Detroit Police Commander Todd Bettison stated, “Our main goal is to respond to crime, and if we can utilize modern technology, then so much the better. We feel very passionate about this. We've been looking at this for a long time and from what we've observed this is definitely the way to go.”
One program developed by the security industry to address this “false alarm problem” was to transform false alarms into a municipal revenue stream — creating city ordinances mandating false alarm fines and permits for burglar alarms.
While filling the city's coffers with false alarm fines may placate city councils, this approach does very little to increase arrests and address the need for effective loss control. In any case, in many jurisdictions this program is simply overwhelmed by draconian budget cuts that are decimating the ranks of law enforcement.
The recent Department of Justice publication, “The Impact of the Economic Downturn on American Police Agencies” stated that at least 10,000 officers had been laid off in 2011. In the last two years, the San Jose Police Department has reduced its officers by 20% — forcing them to reconsider alarm response.
In a memorandum sent to the City Council's public safety committee in December 2011, police Chief Chris Moore wrote that, “the primary purpose of police is to respond to reported crimes, preventive patrols and community policing, and the practice of responding to all audible alarms does not accomplish any of those goals.” Chief Moore further underscored just how ineffective traditional alarms were at delivering apprehensions: “In 2011 San Jose had 12,450 alarm calls and of those there were only 2 arrests.”
These statistics are not unique. According to the Las Cruces Sun-Times, Las Cruces, New Mexico is moving towards verified response after reviewing that in 2011 a total of 12,970 alarm runs resulted in only 2 burglars being arrested. In light of such statistics, San Jose, California went forward and implemented a verified response policy on January 1, 2011. City leaders say the new policy will allow police to focus on high priority calls and perhaps even reduce those response times.
This is the real benefit of verified response to underwriters — policy holders who use video verified alarms actually get faster response for more arrests. Police attention is focused on crimes-in-progress instead of on false alarms.
Most underwriters are not aware that police don't respond to traditional alarms in many areas of the country. Politicians avoid public outcry, and degraded alarm response policies are often presented in “politically friendly” code but the result is the same — no police response and higher claims.
“Broadcast and file” is one example of a “friendly” sounding non-response policy that is popular in Colorado and the West. For many large Colorado cities like Denver, a “broadcast and file” policy means that alarms are simply broadcast over the radio and an officer responds if he feels like it, and has nothing else to do. It is “voluntary response.”
The majority of the time this means no response at all. In contrast, video verified alarms still receive mandatory dispatch in “broadcast and file” jurisdictions and deliver real value and arrests. Many police departments have simply relegated traditional alarm response to such a low priority that the response time is measured in hours not minutes.
Underwriters have not been totally ignorant of this trend towards degraded response. Large companies like State Farm and Allstate have already eliminated the “alarm deduction” in Florida and underwriters are moving to remove it from their contracts nationwide because they can no longer afford what has become a “marketing device” that has no impact on reducing claims.
The alarm industry and law enforcement have a solution — new technology and updated policies. Video verified burglar alarms have resurrected the police/alarm response model. Police are making arrests again and changing the paradigm. The June 2012 cover story of SDM Magazine, “Does All of This Stop Crime?”, cited examples of amazing arrest rates using video alarms. Universal monitoring, an alarm company in Charlotte, achieved over 60% arrest rates on their monitored video alarms in a one year period. F.E. Moran, an alarm company in Illinois, delivered 129 arrests for 136 incidents using video alarms protecting commercial property — over a 95% arrest rate!
The March 2012 issue of IACP (International Association of Police Chiefs) Police Chief Magazine documents a case study of this new approach at Detroit Public Schools in an article entitled, “Arresting Results: How One District Achieved a 70 Percent Closure Rate with Video Alarms.” Detroit Public Schools installed video intrusion alarms in 30 vacant schools that were targets of vandalism and copper theft. During the 2010/2011 school year, there were 101 burglaries in these facilities. According to the report, the police closed 70 incidents with arrests of 123 people — a 70% arrest rate.
From an underwriter's point of view the results change the game — a few thousand dollars for video alarms saved millions in damage for Detroit Public Schools. In fact, Detroit officer John Greene made over 150 arrests using video intrusion alarms and was named officer of the year in Police K-9 Magazine.
These results are not unique — video intrusion alarms are delivering arrests across the country, saving insurers millions.
In February 2012, the Los Angeles County Sheriff's Department, speaking of their new Priority Response program, announced initial arrest rates of 19% for video intrusion alarms. In contrast, the 2011 burglary arrest rates (without alarms) in Dallas and Minneapolis were 5.2% and 7.3% respectively. Even more worrisome, a study by the San Bernardino Police and Sheriff in 2007 reported an arrest rate of 0.08% for traditional alarms. For San Jose it was less than 2 arrests for every 10,000 alarm runs in 2011.
It is ironic that insurance companies continue to offer costly “alarm discounts” in cities that no longer respond to alarms that no longer deliver arrests.
An underwriter knows that putting one burglar in jail prevents an additional 30-50 burglaries they would have committed on the street (as well as eliminating the cost of the entire claims process incurred by the company). A single site in Chandler, Arizona protected with video intrusion alarms resulted in over 40 arrests in 4 months according to an article in Modern Contractor Magazine.
While response to traditional alarms is decaying, video verified alarms are transforming security and providing new value to law enforcement and underwriters. Alarm monitoring companies are even sending video clips of the intruders to police cell phones, making them even more effective. This is making a dramatic difference in combatting property crime, a paradigm shift for police and sheriffs. Video alarm technology and Priority Response has created an inflection point in an insurance market demanding the return to modern loss control.
It is also a new world for law enforcement. Both police and sheriffs embrace solutions that deliver arrests and make them more effective. Law enforcement sees video intrusion alarms as a fundamental paradigm shift and they want to encourage them, so much so that they are directing the 911 dispatch centers to create special dispatch codes that designate video alarms for high-priority response. In essence, the 911 operators treat video verified alarms as a crime-in-progress, not just an alarm.
Priority Response to video alarms means that the historical police/alarm concept has value for underwriters and works again protecting property and reducing losses. Police respond to video alarms and make arrests that reduce claims. Law enforcement is being proactive, encouraging their citizens to help them protect their property. Chief Steve Dye, of Grand Prairie, Texas recently announced a Priority Response policy on a televised newscast and sent flyers in the water bills of Grand Prairie property owners encouraging them to upgrade to video alarms. Sheriff Larry Amerson of Calhoun County wrote a letter to his constituents, “We believe that video alarms offer enhanced protection to you and help us in our efforts to keep Calhoun County citizens safe and protect their property.”
Law enforcement is making arrests again, and it matters. The National Sheriffs Association even officially endorsed the video alarm manufacturer, Videofied, the first endorsement of a burglary alarm by national law enforcement — because they deliver more arrests.
It is a new world for underwriters. Loss control matters again. It's a world that is ripe for the rebirth of the police/alarm/insurance partnership. Underwriters need loss control — the stock market crash and economic downturn have radically impacted the insurance business model and profitability. Pat Speer, editor of Insurance Networking News, spoke of alarm systems in her January 2012 column, “Is Loss Control a Lost Art?” She concludes her article with, “Given the cost dynamics of the industry's long history of successful loss control initiatives, holding clients contractually accountable for known risk management prevention efforts is just logical. Isn't it?”
Underwriters are again forced to price policies that depend upon loss control for profitability. To strengthen the point, the downturn has created new crime categories, such as copper theft, that leave insurers with expensive property claims 20 to 30 times greater than the scrap value of the stolen copper — recovery is impossible when stealing $1,800 of copper creates a loss of $85,000 for broken plumbing, wiring and HVAC. CBS News recently reported on copper theft at a dental office in Sacramento where thieves caused over $10,000 in damage for $200 of copper.All this pressure on profitability comes at a time when the premium base is actually shrinking. With the proverbial financial gun to their heads, underwriters are looking to resurrect “loss control with a badge.”
Reconsidering The Alarm Discount
Underwriters are becoming educated. Experience has taught them that video surveillance is not loss control. Most surveillance is NOT monitored in real time. It is true that high definition CCTV surveillance cameras and a video recorder can document a theft in high resolution for later review by the business owner. This may be interesting for a television audience, but for the underwriter the crime has already happened, the building is damaged and the crook is long gone with the loot.
Movie-quality video without real time monitoring and immediate police response is a solution, but for other problems. Video quality is not the key issue — once the monitoring operator can tell that there is an actual crime and sends the police — that is enough. There are hundreds of video clips of arrests on YouTube taken outdoors and in difficult low-light conditions that prove the point.
“Adequate video quality” means affordability and the good news is that video intrusion alarms themselves are now the price of a traditional system and much less expensive than a high definition surveillance system. Police don't need Hollywood quality to make arrests — what they need is instant notification of a crime-in-progress.
Underwriters know they must answer the question, “How can we encourage policy holders to use video alarms and police response to reduce losses?”
One simple approach is to review the existing alarm discounts and limit them to video intrusion alarms that deliver Priority Response. Practically speaking this means working with an alarm company as a partner that provides video verification services. Effective loss control means that video clips of the burglary are sent to a monitoring station where they are immediately reviewed and dispatched as crime-in-progress.
A longer term approach being coordinated by the PPVAR (Partnership for Priority Video Alarm Response) is to bring the insurers, law enforcement and security companies together to begin to develop guidelines and standards that could be used by underwriters for specific markets and applications. The board of the PPVAR is composed of representatives from the Police, Sheriffs, the National Insurance Crime Bureau, and the Alarm Industry. This security/insurer/law enforcement working group will analyze loss data for specific applications, such as construction, and create guidelines for minimum requirements needed to actually bring the police and stop the losses — an updated reincarnation of certificated alarm systems.
In any case, the alarm industry and the PPVAR are reaching out to insurance industry associations including the CPCU (Chartered Property Casualty Underwriters), the NICB (National Insurance Crime Bureau), ISO (insurance Services Corporation), PIAA (Professional Insurance Agents Association), and others to educate them and solicit their support as we attempt to resurrect the partnership that worked so well in the past — security companies installed alarms, police made arrests, and insurers reduced loss.
For more information on the PPVAR: www.priorityresponse.info
CPCU webcast training is available at www.cpcusociety.org/page/184331/
NICB 6 minute video overview: www.ijmag.com/LossControl