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by Ed Schirick
The
insurance industry has colloquial terminology that can be baffling at
times. The term "hard insurance market" is not one of them. It is a term
camp directors and other business owners are hearing a lot these days
from their insurance agents, brokers, and underwriters. But, it doesn't
take long for consumers to learn what the term means. Everyone immediately
has a clearer understanding of the term's meaning upon receipt of his
or her 2002 insurance premium.
A hard insurance market is not consumer friendly. Typically, rates are
up, new exclusions may be imposed, and limits may be reduced. In addition,
certain coverage readily available before the change may no longer be
available, and certain types of businesses may find it difficult, or
impossible, to find acceptable insurance arrangements. The current hard
insurance market is all of this and more.
Insurance rates, coverage terms, and limits have been under review by
underwriters since late 2000. Insurance company rates of return in the
stock market have been well below the expectations of investors. A long
period of competition had taken its toll on the industry's earnings.
The analysis and plans for change in the insurance business were well
under way before the terrorist tragedies of September 11th. These events
created new uncertainties and risks for underwriters that were previously
not identified. The impact of these events and the new realities post
September 11th definitely accelerated and exaggerated the changes already
taking place in the insurance market. The resulting impact is now being
felt throughout the insurance buying public.
Whether your crystal ball was clear and you saw these changes coming
in the insurance marketplace, or you were surprised, is not important
now. The environment for business and for living has changed - further
influenced by a slow economy, unrest in the Middle East, and our war
on terror. Recent reports concerning the problems of sexual misconduct
and maltreatment of children involving one of the world's largest religious
institutions hasn't helped either. The departure of two underwriters,
one in 2001 and another in 2002, who focused on the camp market as a
specialty, in particular, have further adversely impacted the camp insurance
market.
The net result is a restricted market - fewer underwriters pursuing
the camp marketplace, with less appetite for certain risks, and increased
uncertainty about the future. These circumstances spawned double digit
increases in primary insurance costs for some and new exclusions for
terrorism and mold. Other camps have seen double and triple digit increases
in the cost for catastrophic liability along with substantially reduced
limits and "claims made" policy forms with limited extended reporting
period options, among other changes.
What's Next?
Risk management is about managing uncertainty. Insurance is just one
of risk management's tools. The five steps in the risk management process
provide camp directors with the means of managing these changes - coping
with the new risks and surviving the hard market.
Here are some survival tips:
- Choose a knowledgeable insurance agent or broker who works on your
account as a priority. You need the most knowledgeable, experienced
advice you can find in the face of these unstable, uncertain times.
If you don't think you are a priority with your agent or broker, fire
him or her and get someone who responds to you as a priority client.
Challenge your agent or broker to recommend ways to reduce insurance
costs - without sacrificing vital protection.
- Know how your insurance is priced. Ask about discounts and if they
have been applied to arrive at your final insurance cost. Insurance
rates are averages. Underwriters have the ability to increase or decrease
the rates within a certain range. Their deviation from average is based
upon their perception of your risk as it compares to their mental image
of an average risk. Negotiate with your agent or broker about credits.
This may uncover some misperceptions your underwriter has about your
risk, which may be costing you money.
- Invest in loss prevention and safety. This is part of the third step
in the risk management process, risk control. Ultimately, these expenditures
should pay big dividends by increasing the controlled risk environment
at your camp in the long run. Camps who have made few or no claims
will fare better in a hard market than those with more claim activity.
Be a good communicator with your agent or broker about these loss prevention
and safety initiatives. Investments in these areas should be viewed
positively by underwriters and help you paint them a picture that your
camp is an above average risk deserving of their best pricing. When
money gets tight in organizations, investment in loss prevention and
safety is often sacrificed for other purposes. Now is not the time
to discontinue risk control funding and efforts.
- Know your underwriter. Invite him or her to camp with your agent
or broker. This is a time for you to put your best foot forward and
demonstrate how your camp is better than average. If you aren't ready
to do this, postpone the visit until you are. Alternatively, find out
if your underwriter attends camp conferences and, if they do, introduce
yourself. Talk about risk and what he or she sees as concerns now and
for the future. Try to get some "window" into his or her thinking to
help you manage these risks better in your camp. Share your insight
with your agent or broker to avoid surprises and manage your insurance
better. Advanced planning and discussion with your agent prior to your
renewal is especially important if you have had claims. Be proactive!
- Think twice about introducing new programs, trips, or activities
- if they involve adventure or perceived risky exposure. Camps with
emphasis on tripping and adventure have been hit harder by this new
insurance market. Many have lost their insurance and found it difficult
to find replacement coverage. Camps with a wider variety of programming
have fared better. Touch base with your agent or broker and have him
or her talk with your underwriter about your new program plans before
investing time and money. Talking with your agent, broker, and underwriter
probably seems like an extra step, but it could save you from embarrassment.
The extra step might even save your job. Find out if your insurance
company will underwrite your new program or activity before you act.
This is another great opportunity to clear up underwriter misperceptions.
- Review, revise, and renew efforts to conduct background checks on
all staff and volunteer workers. Not all states permit fingerprint
criminal background checks. If your state permits access to these databases,
make plans to develop and implement a fingerprint checking program
if you haven't already done so. If your state does not permit fingerprint
background checks, take the time and spend the money to do name or
social security record checks. The entire sexual misconduct issue is
receiving increased scrutiny from underwriters in light of recent events.
Sexual misconduct is driving some of the underwriters' perceptions
of camps in our opinion. Camps must take all responsible and reasonable
steps to reduce the risk of sexual maltreatment of children in their
care by using the available background record checking resources to
screen staff and volunteer workers. These efforts will eventually help
improve the underwriter's perception of risk.
- Consider getting proposals from other insurance companies. This is
a time-consuming process, which must be managed closely. As a result,
it is not done often. If you haven't taken a look at what other insurance
companies can do for you in the last three years, it may be time for
you to consider looking into other proposals before your next policy
anniversary.
Remember, the risk management process provides camp directors with the
tools to control and manage risk in this new and uncertain environment.
Review your plans and take the time to identify any new risks, which
may have developed resulting from underwriters' actions in this hard
market. Decide which steps you can take to retain, transfer, reduce,
and avoid these risks. The suggestions above and the actions you take
will help you reduce the overall cost of your insurance program. Get
competent, professional advice from risk management and insurance resources,
and you will cope and survive.
Originally published in the 2002 July/August
issue of Camping
Magazine.
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