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Risk Management: Hard Insurance Market Expected to Continue
by Ed Schirick
Are You Ready?
Camp directors, risk managers, and insurance buyers throughout the U.S. discovered a more difficult and risky insurance marketplace in 2002. It was characterized by higher prices, more restrictive coverage, and lower limits for certain risks. Some camps, especially those with adventure travel formats, found it difficult to find insurance at all, as some underwriters withdrew from that segment of the market. Most camp directors paid more for their insurance and retained more risk in 2002 than they did the year before.
As we look forward to 2003, camp owners, directors, and boards of directors will continue to be challenged by unstable economic news and uncertainty created by our continuing war on terrorism. Corporate accounting scandals will continue to increase economic uncertainty as executives accused of wrongdoing have their days in court. The federal deficit will add fuel to these uncertainties as the U. S. continues efforts to change its intelligence community and develop an infrastructure to protect Americans at home and America's interests abroad.
In addition, the safety of children will continue to be a major concern for parents. The risks of sexual misconduct and child abduction, every parent's and camp director's nightmare, became all too real again in 2002. Camps will continue to be challenged by these issues and held to steadily higher parental expectations of care and safety.
Uncertainty at home and abroad means you can expect more changes in the insurance marketplace in the year ahead. The September 11 attacks provided impetus for U. S. insurance companies to increase rates and make changes in the types of risk they were willing to assume. Many of the changes attributed to September 11 were actually already well underway before the attacks. But, following the events of that day, new risk and insurance issues surfaced, which were previously not anticipated, or clearly identified. These new uncertainties added to the impact of the insurance marketplace changes and altered the risk appetite of many underwriters.
As the insurance market continues to "harden," expect more rate increases and more restrictions or clarifications of coverage. For example, some underwriters took the opportunity to attach terrorism exclusions on property, as well as liability, insurance policies in 2002. This will become more widespread in 2003. It should come as no surprise that terrorism is one of the new risks and realities of our post September 11 risk management and insurance world.
The insurance industry is seeking federal government support in order to continue providing insurance protection against terrorist acts. Negotiations in Congress on this issue stalled in late summer. But, support will be forthcoming because some banks are now unwilling to lend money to certain businesses and real estate ventures without property insurance protection for terrorism. There is a lot at stake economically. Expect an eventual compromise - perhaps even before the fall elections.
How does an exclusion for terrorism affect your camp? After all, camps have little or no exposure to terrorism, right? Or do they? Consider the international counselor placement programs and how many staff you hire through them. Do you have foreign campers? What impacts will the risk of terrorist acts on U.S. soil and America's continuing war on terrorism have on foreign staff, campers, and their families? Should you be taking any action to manage those risks? If you haven't given this issue much thought take time to reflect on it now, while you can still think about the issues quietly. Anticipate problems and consider how to manage these new risks while there is still time to do something about them. The risks of terrorism are not strictly limited to bodily injury to people and damage to property. Remember that your business assets are both tangible and intangible. Don't forget that perceptions can create reality, which is sometimes different than the facts. Consider the "big picture" of possibilities.
Other insurers are attaching or planning to attach property and liability exclusions, which eliminate coverage for the risks of bodily injury to people and damage to property associated with toxic mold, mildew, fungus, and certain biological, or pathogenic agents such as anthrax, for example. As these exclusions are finalized and put on your policies, new risk management practices must be developed. We'll know more in the months ahead. In the mean time, take some time to educate yourself about these risks and consider what they may mean to your camp.
Other subtle insurance policy changes were underway in 2002 that will impact your insurance coverage and risk management practices. Periodically, insurance companies revise and update the coverage they provide to their clients. Sometimes these changes involve expansion of coverage. Sometimes the revisions restrict coverage. Often these changes are done through endorsements to the insurance contract. But, sometimes the entire contract itself is rewritten.
Perhaps it was coincidental, but in 2002 several of the underwriters providing insurance for camps adopted totally re-written primary, property, and general liability insurance coverage forms. One of the significant changes for next year involves a narrowing, or clarification, of the coverage in the latest version of general liability policy regarding your Internet activities.
Historically, insurers have steadily redefined personal and advertising injury liability coverage in response to changing conditions. Traditionally, advertising injury liability coverage, has excluded liability of insureds in the advertising, publishing, and broadcasting business. This same philosophy has now been extended in the latest version of the general liability policy to exclude coverage for the activities of Internet businesses engaged as follows:
. those that design or determine the content of other entities' Web sites;
While these new limitations are focused on Internet businesses, they may also create some "gray areas" for other businesses. For example, if you own, host, or control a chat room or bulletin board on your camp Web site, the new exclusion may have eliminated coverage for these Internet activities. Likewise, if you have an enterprising, knowledgeable staff person who has been designing or developing content for other Web sites, you may now be without insurance for those activities. It is important to take some time to determine the scope of risk created by your camp's Internet business activities and get clarification from your insurance representatives as to whether these insurance coverage changes affect your business.
Advertising Injury Liability
There is another subtle change coming in the general liability insurance policy, involving Advertising Injury Liability. The Insurance Services Office has restricted coverage for infringement of copyright, trade dress, or slogan - so called intellectual property - only to offenses in your "advertisement." "Advertisement" has been defined in the policy to mean "notice that is broadcast or published to the general public or specific market segments about your goods, products, or services for the purposes of attracting customers or supporters." The actual act of using someone's copyrighted material without their permission, or misappropriating an organization's style of doing business are not covered in the latest version of the general liability policy outside of your "advertisement."
The definition of "advertisement" also specifies that only that part of your Internet Web site that is about your programs and services is covered. The bottom line is certain intellectual property risks, which may have been insured in previous versions of the general liability policy, may no longer be covered in this latest version of the policy depending upon the scope of your activities. As a result, it is necessary to re-examine your advertising and Internet activities and determine the scope of your camp's liability insurance protection for these activities as well as for other intellectual property rights risks.
Be Ready for Change
Are you at risk as a result of these and other changes? The main goal in risk management is to preserve the assets of your business so your mission can be accomplished. Preserving the assets of the business requires alertness and flexibility and a willingness to change and adapt as the environment for business and risk changes. Don't be surprised and caught off guard by change. Discuss these and other concerns with insurance and business advisors well in advance of insurance policy anniversaries. If you discover gaps in insurance risk transfer, you may be able to buy other insurance designed to pick up the risks in those gaps. Or, you may be able to reduce or eliminate the risk by developing new risk management practices. Regardless of which risk management approach you adopt to respond to change in these uncertain times, keep this basic risk management principle in mind: don't risk a lot for a little.
Originally published in the 2002 November/December issue of Camping Magazine.