Insurance, or the concept of it, is simple. Should an incident occur, one can sleep
comfortably knowing the insurance company will compensate any losses by drawing
money from a reserve. However, such a system can only work when there is more
money going into the reserve than there is being drawn from it. Since insurance basically
spreads the risk of a few among the many, people who have a higher chance of filing a
claim pay higher premiums to offset the risk of running the reserve dry.
In an ideal world without crime and natural disasters, homeowners can leave their houses unprotected for an extended period of time, assured they will remain changed by nothing but dust. Sadly, such a world has yet to dawn upon us. As such, certain measures must be taken to defend our safe harbors from criminals and freak acts of nature. Many homes already have basic security systems to prevent unexpected damages, such as burglaries or fires.
Yet these devices are no guarantee that a home will be safe from danger. Should an unfortunate event occur, owners hope to be compensated for losses and recover as quickly as possible from disasters. Such recovery is impossible if a home is not properly insured. “A security system cannot replace or negate the need for adequate insurance coverage,” said Dave Newbury, PR Chairman for the Security Systems Section, British Security Industry Association (BSIA).
Lower, Lower, Lower
While having adequate coverage is important, many people consider the expense a burden. For the thrifty homeowner, finding ways to save on home insurance is necessary when planning for personal finance.
One of the ways to save on home insurance is to install an alarm system. Insurance relies on statistics — the less likely a person is to make a claim, the lower his or her premiums will be. Many insurance companies offer discounts when homeowners take measures to make their homes more secure, such as installing alarms, thus making them less likely to file a claim.
However, policies vary widely for insurers in different parts of the world. For some insurance companies, simply having an alarm installed is sufficient for a discount. “Our underwriters ask for confirmation that an alarm has been installed, and if it is local or monitored,” said Vince Northey, Underwriting Section Manager, State Farm Insurance Canada. “We do not determine the effectiveness of security systems. We do provide a higher discount for monitored alarms than for local alarms.”
Others may have more specific demands. Many insurance companies require a home to have fire protection and burglar alarms installed to qualify for a discount. “But some are now also starting to request flood monitoring and low temperature monitoring, accomplished through sensors strategically placed in the home,” said Lou Martorello, Senior VP of Sales, World Wide Security.
If burglary is not a main concern or not covered by the policy, taking measures to prevent it does not affect insurance premiums much. “For the UK market and many other EU countries, the burglary risk part of an insurance premium is very small, therefore the total savings are not that great,” said Tony Makosinski, PR Committee Member for the Security Equipment Manufacturers Section, BSIA. “One company recently told me that the discount is less than 5 percent off on the theft part of the premium — not the whole premium.”
Save or Secure?
When people are shopping for professionally monitored systems, the primary concern is how effective the security system is and what level of security can be provided. The discount on insurance premiums is a minor incentive for these people. “For a system that costs about US$400 to $600 per year for the monitoring and $900 to $3,000 for the system itself, a discount in the order of the tens of dollars ($30 to $200) is no incentive,” said Matia Grossi, Research Manager for EMEA Physical Security, Frost & Sullivan.
However, while many homeowners are more concerned about keeping their loved ones and assets safe than saving on premiums, discounts are still an added benefit, Martorello said.
When the recession hit about two years ago, the security industry saw a dip in growth. “However, regardless of the economy or world events, crime does not stop or take a break,” Martorello said. “For residential customers, a sense of security was missing and there is a mindset to feel safer. We actually saw an increased demand from residential customers for traditional systems.”
In the U.K., however, crime statistics dropped, including burglary. Several sectors significantly reduced their budgets for security as the recession continues. “Most security solutions act as deterrents to criminals. Although this makes them invaluable for the protection of a property, it also means that it is not always possible to quantify how many criminals have been discouraged from burgling a property after seeing what security produc t s have be en ins a l l ed. Unfortunately, in times of economic uncertainty, not being able to put a definite figure on the number of attacks deterred means homeowners can fail to recognize the real value of protecting their homes, and as a result security spending will suffer,” Newbury said.
When looking for security providers, homeowners often follow the footsteps of family, friends or neighbors. It is imperative buyers know in advance what kind of service and security they should expect. “Working with insurance companies and brokers, potential customers can have proper recommendations from a trusted source,” Newbury said. For security consultants, partnering with insurance companies has the benefit of potential recommendations, Martorello said.
However, insurance companies tend to not recommend brands of equipment, since neither the vendors nor technology used is their area of expertise. “Generally an insurer will give a guideline on the areas of protection required, leaving the final specification to the supplier; but membership and registration with recognized associations like the BSIA or supervisory organizations such as the National Security Inspectorate or the Security Systems and Alarms Inspection Board are almost always required,” Newbury said.
The finished system often includes equipment from several manufacturers. “Installers and manufacturers work with insurers to ensure that they only specify graded equipment and help them with materials about alarm component specifications and usage details,” Makosinski said.
More insurance companies require homeowners to install alarm systems before they are covered. “An insurer may be more likely to decline the risk without a properly installed and maintained alarm system,” Makosinski said. Martorello added “more insurance companies are beginning to require homes and businesses to install security systems before the policy is written.”
Upgrading existing security systems to use new technologies may not affect insurance rates. “We encourage our policyholders to let their conscience determine what level of security they feel they need,” Northey said. “As new technology becomes more prevalent, we will consider the impact those changes have to our customers and our overall loss characteristics. This will determine whether or not changes are needed to our current policies. We offer no additional discounts based on differing technologies at this time.”
Advances in the IT sector benefit security, bringing new possibilities for manufacturers and service providers. “With the advent of new technology, including remote video access and control through the Internet and mobile devices, security and personal protection increased for both business and residential customers,” Martorello said. “These technologies are now working over a more secure communications path.”
Advances in security equipment have been influenced by broadband Internet access, which provides higher speeds and reduced costs in data transmission, Newbury said. This made remote monitoring an alternative to professional monitoring services during the recession, as people chose more DIY, self-monitored systems, Makosinski said.
As smart phones and other mobile devices become more common, homeowners can stream surveillance video on the go. “Many customers are very versed in the use of computers. They demand the same level of technology in the alarm and life safety systems used in their businesses and homes, and expect them to complement their personal lives and help run their businesses more efficiently,” Martorello said.
New technologies bring new opportunities. “Change and progress is good and should be embraced by all security professionals, as improvements in Internet services have driven new products,” Newbury said. “Remote monitoring is but one example.”
New Fish in the Pond
With broadband Internet and fiber networks reaching more people, telecoms and utility companies are offering security services to increase services and diversify revenue. While telecoms and utility companies come in and out of the market, it is a difficult market to succeed in and they often leave after a few years with limited to no success, Grossi said.
Trained personnel are vital for success. “Those entering the market won't be in business very long if they don't perform additional due diligence on their employees,” Martorello said. “This is not a major problem, since many off-site organizations offer training services.”
As bandwidth becomes cheaper, new business models are emerging, such as managed video as a service where video feeds are managed from the cloud with the VMS at the central server. Security personnel and business owners simply stream the feed whenever and wherever they please through a Web interface, leaving storage and transmission to the service provider.
However, hosted video stored off-site raises privacy concerns, since unauthorized outsiders could access the footage. “Snooping can potentially be a problem, but can be avoided with the proper safeguards,” Martorello said. “The IT department should also create a safety defense mechanism to prevent this from the technology side as well.”
Managed video is not for everyone. “In theory, these new business models can provide more services and flexibility, but in practice there is very little value to residential customers,” Grossi said.
Secure and Insure
Security and insurance is not an either-or decision; both are needed to ensure peace of mind for a homeowner. While taking measures to make a home more secure can have the added benefit of slightly lowering insurance premiums, it is ultimately just that — an added benefit.