Why the Industry Should Embrace Insurers’ Value Proposition

In January, a local newspaper in Las Cruces, N.M., reported on the mayor’s efforts there to update the city’s alarm ordinance and improve the effectiveness of police response. Among the facts provided in the story:

  • There were 12,970 burglary alarm calls in 2011
  • Only 50 of the alarm calls were actual crimes (99.6% were unnecessary dispatches)
  • The alarm calls resulted in five arrests, two of which were for burglary

The article also described a contentious relationship between the local alarm industry and the city, which has a population of more than 97,000 residents. A typical City Council debate finds the security industry fighting with law enforcement officials: The city threatens to stop responding to traditional alarms and alarm companies counter fervently to protect their installed base of traditional alarms from becoming devalued because of nonresponse. 

In what should be viewed as a positive development, Mayor Ken Miyagishima proposed a novel solution to resolve the predicament. Simply, he wants to amend a city ordinance to require verified response for any new burglar alarm system installed in new residential or commercial construction. The proposal protects the investment that alarm companies and citizens have made in existing traditional alarm systems.

In this case, the mayor bent over backwards to address the installed base requiring video verification only on new alarm systems. The mayor gave alarm companies the opportunity to upsell all new customers with innovative technology that delivers more arrests and reduces false alarms. However, the alarm industry opposed this plan and fought against new technology, instead asking the city to share the revenue through new false alarm fines and permit fees imposed upon Las Cruces citizens. I believe that we have missed the point. 

Consider the Role of the Insurer

It is time the electronic security industry reconsider its value proposition and the stakeholders that we serve. The alarm industry’s opposition to innovation for new systems ignores the major player in the value chain – the insurer. Property/casualty insurers pay for 87 cents of every dollar lost to burglary, according to the Insurance Loss Control Association. In a very dramatic sense, the insurance companies are the real customer of the alarm industry, and they are demanding value.

After decades where investment income filled their coffers, the insurers are again focused on “loss control” to achieve profitability. The stock market is down and reducing claims is the only way insurers can make money. Insurers are not embroiled in the false alarm battle. They want arrests. For insurers, arrests mean lower claims; a single arrest can prevent up to 50 burglaries and associated claims. Intrusion alarms that don’t deliver arrests have little value for them.

We are at an inflection point. For years the alarm industry has used insurance discounts to help sell monitored alarm systems, but now insurers have begun to eliminate these discounts. In recent years, State Farm, All State and many other major insurers have dropped these discounts in Florida and the trend to kill alarm discounts is accelerating. The reason is simple: For insurers the discount is a marketing device that hasn’t delivered real value or loss control — i.e., no arrests.

Shrinking police budgets made property crime less important. The typical officer’s attitude is now, “Nobody was injured and it was insured anyway.” Insurers are responding to this trend by encouraging their policyholders to install video verified alarm systems because they deliver better response and more arrests.

All this brings us back to the Las Cruces debate. The alarm industry cannot afford to oppose innovation for new alarm systems. If our industry goes on record opposing innovation and technology that delivers arrests and real loss control, the insurers will rightly consider us irrelevant and form new partnerships to deliver the loss control that they need. Insurers’ new focus on loss control and property crime is an opportunity to build our business and our margins.  Instead of fighting it, we should embrace it and grow.

Keith Jentoft is President of RSI Video Technologies, based in St. Paul, Minn. He can be contacted at [email protected].


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