NCJ Number
145445
Journal
CPCU Journal Dated: (June 1993) Pages: 107-111
Date Published
1993
Length
5 pages
Annotation
The authors examine the question of whether burglar and fire alarm insurance discounts (typically 5 to 15 percent of premium) are cost-effective to insurers.
Abstract
Three conditions must be met for alarm discounts to be considered cost-effective: 1) Alarms should actually deter burglars; 2) Discounts should provide incentives to purchase an alarm; and 3) Discounts must allow for profits. Results from surveys have provided some bases on which to build a conclusion. Under equal environmental conditions, the risk of burglary of nonalarmed homes is 2.7 to 3.1 times greater than that of alarmed homes. Alarms provide a net monetary benefit to insurers, due to consequent lowered claims. However, discounts figure relatively insignificantly; homeowners will install or not install an alarm system regardless of discounts. Therefore, insurance companies should encourage policyholders to install alarm systems, but not offer discounts for doing so. 2 figures, 4 endnotes, and 9 references