Is a 3rd-Party Central Station the Right Move for Your Alarm Company?

Operating and financing a 24/7 monitoring facility can be a hassle for a business. It might make more sense to put the burden on a third-party central station.

INDEPENDENT alarm contractors must adapt to compete within the new landscape that has developed after some of the industry’s largest players merged and regional companies have shuttered their UL-Listed central stations in favor of third-party service providers to focus on their core proficiencies – meaning sales, design and installation of alarm systems.

While the multinational companies combined for a variety of reasons (including offshore ownership), regional and local companies have made this move, mostly, because technology advancement is outpacing their ability to offer new services to keep them competitive in the market.

By moving self-monitored accounts to a third-party central station, alarm contractors can keep more money to fund their operations and eliminate the hassle of operating a 24/7 mission-critical facility. Plus, as more markets push for higher minimum wages, third-party central stations can keep costs at bay by having economies of scale, which will spread increased cost of labor among hundreds of thousands of subscribers across the nation.

Remain Viable for Years to Come
Take a moment to watch your competitors’ TV advertisements and their focus on selling smart home systems. Sure, you can match the capabilities today – but at what cost per subscriber? And what will the next technological breakthrough cost your company to remain competitive? 

With a third-party central station at your disposal, not only will you be able to match technologies, you will be able to offer leading-edge services and have a head start to gain market share before the nationals have time to duplicate it.

And that’s just for residential systems. What about commercial systems for mass emergency notification or mobile geo-tracking? Can you afford to continue to invest in the newest technologies that only keep you break-even for a year or so?

With a third-party central station at your disposal, not only will you be able to match technologies, you will be able to offer leading-edge services and have a head start to gain market share before the nationals have time to duplicate it.

In fact, during the past 50 years, some of the industry’s most significant technology advancements (e.g. computerizing key processes such as dispatch, implementing Internet-based service selection, syncing alarm signals with video) have been developed or spurred by third-party central stations, not publicly traded companies. A third-party central station enables alarm contractors to focus on gaining subscribers while embracing new technologies as they come to fruition.

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Maintain Control of Your Subscribers
The last thing you want to do is make any agreement that jeopardizes the company you’ve worked to build, so when selecting a central station make sure you always retain right of account ownership.

This is important should you ever fall behind on monitoring fees, because some industry contracts will lay claim to your biggest company asset. Be sure your agreement allows you to cancel accounts with no obligations or cost except for the services already provided and that cancellations result in refunds prorated by the day.

Also, the sale of accounts should not be subject to a “right of first refusal” either. That way, if you ever choose to sell, you should be able to get the best deal possible for accounts and not have your negotiations negatively impacted by onerous clauses.

Ascertain & Explain the Subscriber Contract
The other contract you need to review and understand is the monitoring company’s contract your subscribers must sign. All contracts contain a waiver of subrogation and a Limits of Liability (LOL) clause – 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.

To counteract subscribers’ natural reaction to such a clause, you will need to explain that if a central station were to surrender its waiver of subrogation and LOL cap, it would throw the risk-versus-reward equation completely off balance.

If subscribers want your monitoring company 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 take into consideration 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 that 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.

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