the PDF Version

THE BESTGUARD NEWSLETTER
Is It Important For Your Insurance Company To Be Admitted?
It used to be very important for an insurance company to be admitted in the state in
which the policyholder was operating. The primary reason why an insurance professional
would recommend an admitted insurance carrier over a non-admitted company was
because the policyholders of admitted insurers were protected by their state’s insolvency
fund. And for many years, state insolvency funds protected policyholders against the
insolvency of admitted insurance companies regardless of the size of the loss that was
suffered. Policyholders could have a million dollar loss assessed against them and, if their
insurance company went bankrupt, their state insolvency fund would step in and pay the
million dollars.
Not so anymore. Today, state insolvency funds cap the amount they will pay for any one
loss to well under a million dollars. In most states that we have surveyed, losses are
capped at $300,000. In today’s litigious society, $300,000 is just not enough. There have
been numerous multimillion dollar settlements & awards against private security
companies in the last decade.
A New England security company unfortunately came face to face with this issue a few
years ago. They had purchased a $1,000,000 Commercial General Liability policy from the
Frontier Insurance Company, which was licensed and admitted in their state. Shortly
thereafter Frontier was placed in liquidation. While insured by Frontier, the security
company incurred a liability loss that was ultimately settled for $500,000. The state’s
insolvency fund only paid $300,000 of the loss and the remaining $200,000 had to be
paid out of pocket by the security company.
Because of the obvious inadequacy of state insolvency funds
to fully protect policyholders, we now recommend that a
prospective insurance buyer focus more on an insurance
company’s financial strength and size rather than on whether the company is
admitted or not. Most insurance professionals rely on Best’s Key Rating Guide to
determine the financial strength and size of an insurance company. Best’s utilizes capital
letters along with plusses and minuses to characterize the financial strength/stability of
an insurance company and Roman numerals to characterize their financial size. We
recommend that private security companies insist that the insurance company that
insures them has a minimum financial strength rating of A (Excellent) and a financial size
rating of Class X ($500,000,000 to $750,000,000 policyholder surplus) in Best’s.
VOLUME 1 - ISSUE 6
December 2007
In This Edition
Page 1
Is It Important For
Your Insurance Company
To Be Admitted?
Page 2
School's Homeland Security
Studies Get Noticed
Fraud Can Happen To
Any Size Business
Holiday Parties Boost Morale
but Consider Liability
Hindsight is always better than foresight, but Frontier would not have met the minimum
financial standards we now recommend for private security companies big and small.
However, they would have been close to meeting them. Just before failing in the late
1990’s, Frontier was rated A- Class IX in Best’s. Ideally, we would like to see even higher
standards: Best’s ratings of A+ (Superior) Class XV ($2,000,000,000 + policyholder surplus)
would be ideal. And not surprisingly most of the major insurers of private security
companies in the US today could meet these “ideal” rating standards.
Copyright ©2007 Brownyard Programs LTD Contact Brownyard Programs LTD
for questions or comments regarding the newsletter [email protected]
School's Homeland Security Studies Get Noticed
The nation's first comprehensive high school homeland security program, a three-year course to help kids land jobs in the growing
anti-terrorism industry, is in its infancy in Maryland. But it's recently been attracting the attention of educators and school districts from
as far away as California and Florida.
The program, started at Maryland's Joppatowne High School with 61 sophomores, provides "an opportunity for kids to see relevance to
being in school," says Frank Mezzanotte of the Harford (Md.) County Public Schools. "It gives kids additional options."
Some question whether the program will teach students to be open-minded about the government's national security policies, given its
goal of getting kids jobs with defense and homeland security contractors and the military. Other educators applaud the school for
taking steps to prepare kids for one of the nation's expanding job markets and for connecting what they learn in school to what's
happening in the real world.
Source: USA Today, Mimi Hall, 12/11/07
Fraud Can Happen To Any Size Business
According to a study last year by the Association of Certified Fraud Examiners, occupational fraud and abuse caused a median loss of
$159,000. Nearly one-quarter of the cases caused at least $1 million in losses and nine caused losses of $1 billion or more.
Small-business losses to corporate fraud are disproportionately larger, according to the report: The median loss suffered by a small
business with fewer than 100 employees was $190,000 per scheme.
The typical profile is someone who hasn't committed a crime before, is an employee who has been around three to five years, is not
antisocial and generally is a junior manager.
There are three elements for a person to commit a fraud: motivation or pressure, opportunity and rationalization:
• Pressure - such as high levels of debt (overspending on a credit card, living beyond a person's means, etc.), drug, alcohol
or gambling abuse.
• Opportunity — the boss has put too much trust in the person or has not taken the proper proactive steps, such as
reviewing bank statements instead of having them sent directly to the accounting department.
• Rationalization - Either the person thinks no one will get hurt, it's only temporary or says, ''I'll pay it back.''
In the past, fraud examiners typically were called in after a fraud happened, but more recently some companies are asking experts to
come in regularly, to be proactive.
Spending money to look at the company from anti fraud perspective is money well spent. Very few businesses invest in fraud prevention
but the odds are they will fall victim to it.
Source: Betty Lin-Fisher Beacon Journal business writer 11/29/07
Holiday Parties Boost Morale but Consider Liability
For some the word "party" is synonymous with "drinking", but before business owners
and managers decide on an open bar, there are some liability issues to keep in mind.
If a business hosts a holiday party that includes alcohol and someone drinks too much
and gets involved in an accident, the business could be held responsible.
Office Party Tips:
• Review your business policy with your insurance agent to make sure you have
limits sufficient to cover you should you be held responsible.
• Host the party at a restaurant or bar that has a liquor license. If they have a liquor
license, they have liquor liability coverage that would respond in the event of a claim.
• Don't serve alcohol to anyone who is a minor or who is visibly intoxicated.
• Arrange transportation or accommodations for those who will be drinking
• Serve food to help deter people from getting intoxicated. Food absorbs alcohol.
• Stop serving alcohol at least one hour before the party is scheduled to end. Avoid "last call."
Source: The Ledger, Lorrie Delk Walker, 12/10/07
Page 2