The central station monitoring contract can sometimes be a tougher sell than the alarm system.

Often the sticking points in common central station contract language are the waiver of subrogation, whereby the subscriber agrees to indemnify, defend and hold the central station harmless from any third-party claims, and the Limits of Liability (LoL) clause.

The LoL usually caps claims at some dollar amount — normally $250, $500 or $1,000 — which means the central station is liable to a maximum of that amount for any loss of property or service revenue a subscriber incurs as a result of a central station error, no matter what the cause.

The ordinary complaint is the subscriber’s loss may be 20-fold or more than that sum in a single occurrence. While that may be true, alarm dealers must explain to their customers the central station provides a monitoring service intended only to increase protection for the property. It does not insure the property or the businesses housed within the facility.

BALANCING RISK VS. REWARD
To change the language of the contract and ask the central station to surrender its waiver of subrogation and LoL cap throws the risk-versus-reward equation completely off balance.

If a central station were required to act as an insurer of property — to take the risk of being exposed to huge liabilities for property damage and loss of income — a completely different calculation of cost would be needed to offset the potential risk with a just reward. That’s because central station monitoring fees account for the remote possibility of a capped claim against the company, as opposed to covering a catastrophic loss.

Plus, at each contract renewal, a new price would have to be negotiated for each subscriber based on property values, service revenues, occupancy and contents, just like insurance premiums. Certainly, the entire business model alarm dealers have followed for decades would change. Monitoring fees would increase, as would account attrition because subscribers would actually be insuring their property twice with no additional value received.

UNDERWRITERS DO THE MATH
Almost all properties that have a monitored alarm system are insured to protect a person or business with an interest in a property against its loss or the loss of its income-producing abilities.

Insurance underwriters determine each policyholder’s premium by using complex calculations that evaluate the likelihood of countless loss scenarios and quantify the outcomes to predict potential claims. These calculations, which are done at every policy renewal date, are based on a wealth of data that accounts for variables that affect the likelihood and severity of a loss, such as a monitored alarm system or the presence of sprinklers.

Regarding monitored alarm systems, historical data shows that an extremely small percentage of alarm signals are not acted upon as intended or planned. When insurers calculate premiums for a property with a monitored alarm system, the lessened probability of negative outcomes is taken into account and the premium is adjusted accordingly.

It has been mathematically proven that while a monitored alarm system does not prevent the occasion of loss, it greatly reduces the severity of the incident. In turn, the insurance industry recognizes the value of having a monitored alarm system by oftentimes reducing premiums for the property owners.

Those discounts, in addition to increased life safety and peace of mind for subscribers, account for the true value of central station monitoring service.

The above is not to be taken as legal advice. Please consult your attorney and insurance agent for their professional opinions as needed.

Kevin Lehan is manager of public relations for Chicago-based EMERgency24. A complete archive of “Monitoring Matters” now includes multiple contributors.

 

If you enjoyed this article and want to receive more valuable industry content like this, click here to sign up for our FREE digital newsletters!

Related Content