The Dangers of Protection: What Makes a Guard Firm Low- or High-Risk?
Marijuana legalization for medical and recreational purposes has been analyzed endlessly in the media. But one impact of legalization has not been thoroughly discussed: an increased need for security guards.
Marijuana dispensaries have become a prime target for robbery. Because of this, the dispensaries seek out guards—sometimes armed—to staff their storefronts and halt would-be robbers. But introducing armed guards into a high-risk environment has been shown to make a precarious situation even more volatile.
When I’m asked to evaluate new security firm clients, it’s often for guidance on preventing problems with insurance rates and eligibility. For those purposes, we can think of firms as falling into two categories based on their risk appetites: some serve only low-profile risks—like office buildings—while others specialize in high-profile risks—like marijuana dispensaries.
Each organization’s level of risk tolerance is unique. But when choosing to serve new industries, like the retail marijuana industry, security firms need to weigh the risks, potential costs, and insurance implications against the benefits of finding a new market for their services.
What makes a high-risk guard firm?
High-risk guard firms work in spaces with large, public gatherings, such as sports arenas, shopping malls, music festivals, and even weddings. Any event or location that brings people together en masse and provides them with alcohol is risky for a guard firm.
The logistics of these events and the proportion of people to guards creates an untenable situation. If a fight breaks out at a large sporting event and a guard is 30 rows away, he or she may not be able to reach the altercation before damage is done. However, the guard will certainly be drawn into a related insurance claim.
High-risk guard firms also serve businesses that are a target for criminal activity. This is where marijuana dispensaries come in; large amounts of cash and, of course, inventory worth tens of thousands of dollars are held at these locations.
There is not significant actuarial experience on which insurance companies can base pricing and coverage—the risk is too new—but there have been enough news reports of hold-ups, robberies, and shootings at these shops to raise red flags.
The risk of high criminal activity also comes into play in some low-income housing facilities that see drug activity, assaults, and gang activity. Though guards’ jobs are usually to observe and report from a central location, they are often brought into claims stemming from incidents that happen elsewhere in the complex.
For example, a 2006 shooting at a California apartment complex resulted in a$55 million settlement against a private security firm because the victim alleged that the security guard failed to protect him from a gang member who shot him.
Some guards serving late-night fast food restaurants are also considered high-risk. This is because when people have been out drinking at night, getting an order of greasy fries and a milkshake may be their final order of business. Crowds and alcohol do not mix, and adding an armed guard to the situation increases the risk of an adverse event.
What’s wrong with being high-risk?
Guard firms serving clients in high-risk industries or areas may find it costly and difficult to secure insurance coverage. The experience of high-profile risks, like sporting events, concert arenas, and shopping malls, illustrates the point.
Security firms guarding these venues are seeing insurance pressure, with increased rates and restrictions on available coverage. Security industry claims have long tails—meaning the effects are seen for many years—and as a result, firms are seeing their losses grow over time.
Because of this, high-risk guard firms’ insurance options are limited to the “non-admitted” market. Non-admitted insurers are not regulated by states and do not pay into the state guarantee fund, so they can serve challenging risks. That means there is no protection for insureds in the event of insurance bankruptcy. Some contracts between security firms and their clients, however, will specify that the firm must be insured by an admitted carrier.
Non-admitted carriers are more likely to put exclusions in their policies that should concern the guard firm, such as staffing guards at special events. Like most businesses, guard firms review their business insurance policies once a year when they come up for renewal. The firm may not think of existing exclusions when they are asked by a client to work an event. If something happens at the event that is excluded, the firm will not be covered for the insurance claim.
How risky are armed guards?
The presence of firearms does not necessarily create a high-profile risk. It is acceptable and necessary for guards to carry them in certain settings where there is a high probability of an adverse event or the asset being protected is extremely valuable, such as banks and government contracts.
But staffing a grocery store with an armed guard can appear to be a demonstration of excessive force when considered in the context of the asset being protected and the probability of an armed attack. Putting an armed guard at a fast food restaurant, school, or large event increases a guard’s exposure to the types of events that lead to insurance claims.
How to keep a low-profile when it comes to risk?
Low-risk guard firms have minimal public exposure, working in settings like offices, high-end housing, government contracts, and industrial companies. In these settings, a guard is generally not responsible for large gatherings of people.
But some firms do more to mitigate risk than choose safe clients. Careful pre-employment screening, supervision, a healthy pay scale, and ongoing training help reduce the risks associated with providing security services. Most states have standards for training and screening for security firms. Some firms meet these minimum requirements, but others go above and beyond.
Government contracts tend to be low-risk for all of the reasons described above. They have strict built-in requirements for private security contractors and training requirements well-exceeding the state minimums. Having gone through extensive training and screening, they are at the higher end of the pay scale. And many guards for these contracts are retired law enforcement officers earning up to $50 per hour.
This commitment to professionalism is a recipe for reduced risk in security services. We will have to wait to see how the burgeoning relationship between the legal marijuana industry and private security pans out, but high standards and training will reduce a security guard’s risk of incurring an insurance claim in any setting.
Tory Brownyard is the president of Brownyard Group, a program administrator that pioneered liability insurance for security guard firms more than 60 years ago. He can be reached at email@example.com or 1-800-645-5820.