Making Risk Your Business

After another tumultuous year, club and resort properties—no matter where they're located—need to pay closer attention than ever to how they're exposed and how they're insured.

by Joe Barks (editor@clubandresortbusiness.com)
January 2006
 

First the good news: Even after all the physical hammerings that club properties took from weather-related causes over the past year, nothing appears to have left a permanently damaging mark, at least where catastrophic insurance coverage is concerned.

Certainly, as clubs gear up for another cycle of insurance renewals, carriers specializing in the field say that properties located in the most vulnerable (and already hit) areas will need to be prepared to encounter additional coverage limitations and increases in costs or deductibles this time around. But the damage wasn’t so bad—either to individual properties themselves, or to the industry as a whole—that any club will find themselves deemed an uninsurable risk, or forced to sell furniture or kitchen equipment on e-Bay to be able to afford this year’s coverage.

That certainly doesn’t mean, however, that insurance renewals should now be viewed as routine. If anything, the climactic events of the past year, coupled with general cylical developments now affecting club insurance, call for more diligence than ever on the part of any club—no matter where it’s located or what its history might be—to make sure it is properly protected, minimally exposed, and doing business with the most reliable insurance partners.

Here’s a roundup of some of the key points made by club insurance experts from the carrier side, when they were asked what messages they might want to send to club GMs and directors about the current state of the club insurance business:

• Now’s the time to assess the damage among carriers, too. “The hurricanes [of 2005] not only had the effect of showing some clubs that they were underinsured, or that their coverages weren’t perhaps as broad as they might have thought; it also revealed a lot about the different carriers’ ability to respond,” notes one broker executive. “It certainly isn’t hard to find cases from last year of clubs that had sufficient coverage but still had major difficulties getting settlements, advances, or even proper recognition of the effect of a catastrophe beyond debris removal, so that they could also collect properly for business income loss.

“Every carrier can do a good job normally,” this executive adds. “It’s when you really need responsiveness, after a large fire or hurricane, that you find out who’s going to be there to help you get back on your feet as quickly and completely as possible.”

In addition to double-checking the usual industry ratings of claims performance, service quality and of course financial stability, this executive also suggests that this year’s renewal cycle might offer an especially good opportunity for club GMs to do some personal networking. He suggests they find time this year to consult with colleagues—particularly those in weather-affected areas—to compare notes on just how responsive and thorough specific carriers have proved to be when dealing with club-related claims.

• It goes well beyond trees. Tree damage got most of the attention after the latest round of direct hits on clubs—but insurance sources say that another big message emerging from last year is that this new breed of monster storm can do a lot more than just expose your property’s weakest limbs. “A lot of people got their eyes opened about what these storms can do in terms of completely sucking out bunkers or ripping up bedrock, too,” says one insurance company source. “Those are things that should also be reassessed as part of clubs’ catastrophic coverage.”

• And do you really need all those trees, anyway? “One thing that struck a lot of us in the business was the astounding numbers of trees in some of those claims,” one executive notes. “There were several that were well into the thousands.

“Certainly that’s something to be considered as part of coverage renewal—whether you would want to reintroduce and repeat that kind of exposure through replantings,” he continues. “Golf ’s supposed to be about turf, not trees, anyway—so maybe you’d be better served reinvesting [claims payouts] on turf nutrients, rather than going right back to trying to recreate another parkland-type course with a full canopy effect. Because certainly, it’s going to cost you more to protect all those trees the next time around.”

• Get out your yardsticks. In general, one executive feels, clubs are remiss in making sure their coverage is properly updated each year to accurately reflect current replacement costs. The fallout from such an active hurricane season only highlights the need to do so this year, he feels.

“Just as with a lot of homeowners’ policies, clubs don’t do a good job reassessing their insurance- to value ratios each [renewal period],” the executive says. “They need to know each year how their cost per square foot has changed. And that’s especially important for clubs where there’s a lot of new construction in their area that’s competing for the materials they would need. Plywood, sheet rock, and things like that have really gone up in the Gulf Coast because of all the rebuilding now going on there—so if you had a claim now, you could find [payouts] coming up well short of what would actually be needed at today’s rates.”

• If you find yourself thinking it’s a great buyer’s market, you’d better beware. Insurance executives with carriers that have a long and steady history serving the club market acknowledge that, despite the recent exposure of club properties to more catastrophic risks, we’re still in the part of a cycle that’s seeing more carriers coming back to, or staying in, the club coverage segment than leaving it.

And with the more crowded field, they add, comes the usual temptations of pricing incentives and bells and whistles that many club managers find hard to resist—particularly as pressure grows on them to reduce costs because of upcoming renovations or slackening memberships.

All insurance carriers recognize the need for clubs to economize as much as possible on coverage, of course. But executives with companies who have seen these cycles come and go feel an important reminder needs to be issued this year, particularly to club managers who may be getting into renewals for the first time.

“There are really only four or five of us who have been doing this [writing club coverage] for a while,” says one executive. “[Club managers] may get their heads turned if they see some other ‘big names’ jump in, but if they don’t do their homework and make a switch only because of price, in the long run it’s not going to be good for anyone in the business, on either side.

“There are really only so many ‘bells and whistles’ that matter anyway,” he adds. “And certainly, price is important, but you always have to look behind the coverage to get the proper assurances about service and stability.

“If too much coverage is written by carriers that don’t then do enough to help clubs be proactive about loss prevention and risk management, for example, that’s only going to make the industry loss ratio go up,” he says. “That’s not good for anyone, because then all of a sudden, everyone will have more trouble getting reasonable and acceptable coverage.”

Cautions another executive: “When the market is overserved, as it is right now [for clubs], underwriting discipline will eventually deteriorate among those [carriers] that don’t care as much about stability as about getting business on the books. While that may seem great on a short-term basis for some clubs, it’s eventually going to have harmful effects that will take everyone a long time to recover from. “

• Make sure you’re keeping your people happy—and a close eye on those who don’t seem to be. Finally, one carrier executive felt compelled to point out a recent rise—and he’s not really sure what’s caused it—in significant claims he’s seen from club-related vandalism by disgruntled employees, either through chemical damage or “turfing” of golf courses, or damage to golf carts or other physical property.

“These [types of incidents] will probably be covered by [a club’s] existing vandalism coverage, although sometimes they can be big enough to also result in loss of business income, and that may not be as easy to recover, given those circumstances,” he notes.

“Regardless, this is certainly not something anyone wants to experience, for a lot of obvious reasons,” he adds. “If nothing else, I guess the message where this type of thing is concerned is to tighten up your security—just in case you think this is something that someone could be thinking about to do to your club, for whatever reason, right or wrong.” C&RB

Summing It Up

• The club industry came through the most recent season of natural catastrophes relatively unscathed in terms of insurance-coverage fallout, although properties in the most affected areas will see some effect through increased premiums or reduced coverages.

• The hurricane experiences provided as much valuable insight about carriers’ ability to respond as they did about clubs’ exposure.

• All clubs should review their insurance-to-value ratios in line with current replacement costs, especially in areas with strong building activity.

• A rise in claims from vandalism to clubs by disgruntled employees has been noticed.

Club membership has now become such a precious asset, it rates insurance coverage of its own. Billed by the insurance broker that is offering it as more of "a membership marketing and long-term club financial planning tool" than an insurance product, the coverage is nonetheless called "initiation fee insurance" and underwritten by a major, established carrier. And at the clubs now offering the insurance (the broker says it is in place at 19 clubs nationwide), it is clearly viewed as a way to try to assure prospects that joining their club is a no-risk proposition.

Philip Dodds, Membership Director at Carmel CC in Charlotte, N.C., says his club has been carrying, and offering, the initiation-fee insurance for two years. Dodds came to Carmel a year ago and found that there had been few takers on the insurance for the previous year, "probably because it wasn't explained very well." But he got more aggressive about pushing it as part of his membership sales efforts last year, and feels that it helped Carmel land 15 new members who "might not otherwise have joined here."

Charlotte is a banking center, Dodds notes; many of Carmel's prospects are involved with that volatile, merger-filled industry, he adds, and have either just relocated to the area or know that reassignment is always a real possibility. "They never really know where they may be going in a year or so," he says. "Since we're not an equity club, [the insurance] has been useful in providing a little extra flair and comfort level."

The coverage pays an initiation fee refund if members move beyond a specified distance (typically 150 miles) within a specified time period (typically 30 years). Options for partial payments can be developed, and there is also flexibility in how premiums are paid and refunds are handled. Dodds says that Carmel folds the cost into a premium membership category, so it is covered by the new member directly. So far he has not had to issue any refunds, he says (quickly adding "touch wood" to his response)—but if he does, he doesn't expect it to be administratively burdensome; his understanding is that the club will just need to help the member forward the claim to the broker, and the member will then get the refund directly.

"It's not for everybody, but it's a nice thing for us to be able to add [to membership solicitations]," Dodds feels. "It helps to reinforce that we recognize the need to be more flexible in this day and age."

For more information on Initiation Fee insurance, which is underwritten by Chubb Insurance, contact:

Fonda A. Hereford Managing Member Owners & Members NIS, LLC 1177 N. Warson Rd. St. Louis, MO 63132 (866) 281-2477 hereford@ahmins.com

These executives were interviewed for this Today’s Manager feature on Insurance:

Joseph J. Dolce, CPCU Vice President/Director of Program Development Venture Insurance Programs, West Chester, PA (Preferred Club Program) 800-282-6247 JDolce@VenturePrograms.com, www.VenturePrograms.com

Tom Duggins, National Director, National Programs St. Paul Travelers 800-241-9245, x 75600

Richard Look, Director of Communications Venture Insurance Programs, West Chester, PA (Preferred Club Program) 800-282-6247 RLook@VenturePrograms.com, www.VenturePrograms.com

Tom Marks, Executive VP for Club Programs Bollinger Insurance 800-446-5311 www.BollingerInsurance.com

Robert M. Mulhern, Production Manager Venture Insurance Programs, West Chester, PA (Preferred Club Program) 800-282-6247 RMulhern@VenturePrograms.com, www.VenturePrograms.com