Eric Pritchard is a partner in Kleinbard Bell & Brecker LLP, Philadelphia. The firm focuses on acquisition and...
Eric Pritchard is a partner in Kleinbard Bell & Brecker LLP, Philadelphia. The firm focuses on acquisition and succession strategies.
This month’s column isn’t about halibut or flounder. It’s about a new regular feature on SecurityInfoWatch.com, and an opportunity to showcase your company and how you do what our industry does best: Protect people and property. Soon we will begin posting the “Catch of the Week” online—your stories about recent great apprehensions in which security systems played a crucial role. We’ll post your company’s name, the name of your employees involved and a brief description of the apprehension—and we’ll include photos or video (assuming you have the right to publish those items).
Our goal is to provide a platform to showcase great security-related apprehensions and to put catching the “bad guys” back into the industry spotlight.
Why do we want to do this? I’ll tell you. But first, let me give you a quick history lesson to put “Catch of the Week” into context.
History lesson in the present
Once upon a time, insurance companies earned part of their profit by paying out less in claims than they received in premiums. The insurers’ aggregate cost of claims, including the payment and management of claims, directly impacted their profitability. In those days, insurers seeking to reduce claims eagerly partnered with alarm companies, offering insured’s premium discounts for having alarm systems and helping the industry establish third-party accreditation such as the ability to offer U.L. certificate service. From the insurers’ perspective, alarms meant arrests, arrests meant deterrence and deterrence meant fewer claims. Insurers were happy because fewer claims meant bigger profits. Insureds (also known as our subscribers) were happy because fewer claims meant lower insurance premiums. Alarm service providers were happy because they got to sell, install, service and monitor alarm systems at a profit.
Eventually, however, changes in the marketplace transformed what had been a close partnership between insurer and security provider to a more tenuous relationship. Insurers, operating as increasingly sophisticated investors with significant holdings in the worldwide investment markets over the past 30 years, realized that they could earn extraordinary profits if they invested their premium dollars wisely in the prosperous markets. Simply stated, Wall Street got good at making money through sophisticated financial plays and insurance companies made money on the premium dollars they invested. Claims management, once a key to an insurer’s profitability, became less important and, as a result, deterrence—and alarm systems—became less and less important to the insurance industry. In fact, for most people in the industry, our partnership with the insurance industry seems like a distant memory, or perhaps just a fairy tale.
In addition, over the past decade or so, local law enforcement, feeling the pressures of increasingly limited municipal budgets, began to institute a policy of non-response to alarms as a way of saving tax dollars, based on the rationale that most alarms were false and responding meant allocating valuable municipal resources better used elsewhere. In response, the alarm industry embarked on a campaign to stem public concern over false alarms using techniques like telephone calls and video to verify alarms. Some municipalities now even give priority to verified alarms. Unfortunately, alarm verification has become such a priority that the perception among some is that the industry has moved away from catching criminals and toward just verifying alarms.
Alarms continue to deter crime
The good news is that current market conditions present an opportunity both to re-establish our historic partnership with the insurance industry and to re-orient the focus on what our industry does best: deterrence.
Today’s economy means that, while insurance companies are returning to their historical model of profitability through claims mitigation, tight municipal budgets mean police often do not have the resources to investigate property crimes. (What we call “non-response,” the insurance industry calls “non-investigation.”) These two factors together present the electronic security industry with a renewed opportunity. Insurers are once again looking for ways to lower claims costs, but police don’t have the budgets to investigate property claims. As a result, deterrence has become more important than ever, since catching the bad guys means limiting the loss—and potentially preventing other losses.
So here’s the answer to why “Catch of the Week?” It’s both a platform to showcase what you as providers—and we as an industry—do best, and a way to capitalize on an opportunity, for the benefit for us and for our subscribers. (Not to mention it’s some great free public relations for you and your company if we use your story!) Please send us your entries and see below for just how to do that!
Eric Pritchard is a partner in Kleinbard Bell & Brecker LLP, Philadelphia. The firm focuses on acquisition and succession strategies, including ESOPs. This column does not constitute legal advice; contact an attorney with specific questions. To be considered for the “Catch of the Week,” contact Eric Pritchard at: EPritchard@Kleinbard.com.