Social Inflation and Increasing Demands Drive Hard Market for Security Industry

By Tory Brownyard | May 17, 2021

As insurance markets harden across most lines, many in the industry are looking at the impact of social inflation: Increased litigation, broader contract interpretations and larger jury and settlement awards are driving up the costs of insurance claims and contributing to tightening capacity and higher rates.

In the security insurance market in the U.S., the impact of social inflation is heightened by the unprecedented demand for private security and the threat of active shooter incidents. While such tragedies declined during the pandemic-driven lockdowns of 2020, these incidents are again filling the news cycle as social restrictions ease.

Agents and brokers that work with security firms are now faced with the task of notifying insureds about new coverage limitations and higher rates. By also discussing how they can limit their liability, mitigate risks and avoid costly long-tail claims, insureds may be able to secure coverage with more favorable terms — perhaps now or in the future.

Impact of Social Inflation

Social inflation is generally used to describe the rising costs of insurance claims due to trends such as an increase in litigation, broader definitions of liability, more legal decisions tipping to the plaintiffs and higher jury awards.

In recent years, the frequency of these expensive claims has continued to rise, as described in this recent article from AmWins, which highlighted some of the reasons social inflation has become so prevalent in the U.S.

One of the contributing factors is a rising anti-corporate sentiment that has grown since the financial crisis of 2008, and a drive to hold these corporations responsible for their actions and make a statement. Not only that, but claimants in these cases are often being supported by a plaintiff’s bar, which invests in social media, advertising and expert resources to drive up awards, as well as by outside investors who will cover legal fees in order to get a slice of large settlements and potential payouts.

For security firms, this trend — heightened by the impact of mass shootings, civil unrest and expanded responsibilities due to COVID-19 — has led to a significant increase in the severity of claims in recent years. With jury awards and settlements skyrocketing, even large security firms with a track record of success are looking at increasing rates and finding insurers more hesitant to offer them the coverage they need.

Contract Language and Liability

As social inflation has increased, so has the demand for private security guards, especially with active shooter incidents becoming seemingly commonplace in the U.S.

In the last few months alone, mass shootings at a FedEx warehouse in Indianapolis, a grocery store in Boulder, Colo., and spas in Atlanta — among others — have ended in tragedy. When security is in place during these incidents, the security firm will most likely be held responsible whether rightfully so or not. If they are held responsible, their policy limits, no matter the amount, will be exposed.

The impact of social inflation is significant here. Contract language is often interpreted through a broad lens by the courts and could result in security firms being held liable for injury to not only their client, but to third parties that aren’t even included in the contracts. For instance, a company that hired a security firm may have a third-party vendor come on-site the same day an active shooter occurs. It is therefore important for the guard contractor to review all contracts with their attorney to make sure they are not absorbing liability not covered by their insurance.

Agents and brokers should encourage their insureds to reduce liability by ensuring contracts and work orders explicitly spell out every detail. This includes not over-promising or making guarantees that could be used against security firms and their insurers in an accident.

Long-Tail Claims

Another factor contributing to the increased cost of claims is the long-tail claim. For security firms, these often result from minor incidents that are never reported or reported months afterward, rather than immediately as they should be. While some security firms try to brush minor incidents under the rug, the more frequent cause of late reporting is when a security officer views an incident on the job as minor and not worth reporting. Also, they may not realize they’re directly involved.

Security firms should make it clear that every employee is responsible for reporting any incident as soon as it happens. The longer an incident goes unreported, the more complex a claim becomes, and the more likely it will become a costly, long-tail claim. These are costly to both the security firm’s and insurer’s bottom line, as well as the security firm’s reputation, and make it difficult for insurers to assess and respond to the situation. Today, agents and brokers will inevitably have to tell insureds of rate increases and, possibly, changes to coverage limits or new exclusions. During this process, they can also help guide their insureds by discussing recent claims trends, identifying risk management strategies and providing resources to help them better understand the claims process and general liability for the security industry as a whole.


Communication will be key, and in today’s market, giving insureds at least 90 to 120 days’ notice of significant policy and rate changes is important, along with being honest and forthcoming about why it’s necessary and what it means for their business.

As the role of security officers continues to evolve in a world affected by a pandemic, civil unrest and active shooter instances, these risk management efforts — along with the security industry’s ability to rise to the challenge — will help security firms manage the impact of the current hard market.

Topics Trends Pricing Trends Market

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Insurance Journal West May 17, 2021
May 17, 2021
Insurance Journal West Magazine

The Entertainment Issue; Markets: Cyber & Security