A Decade of Improving Club Safety and Coverage

If you have ever insured or considered insuring golf and country clubs, you know that their risks can’t be classified or managed easily. They have kitchens and restaurants, clubhouses used for daily activities and large-revenue events, a sprawling landscape with extensive maintenance equipment and significant property exposure and fleets of golf carts, as well as professional liability and membership issues.

A decade ago, many clubs didn’t do a good job of helping carriers understand these complex and diverse risks. And in many cases, carriers were not interested in learning. After all, clubs often sought the least expensive coverage available and ran their clubs to be profitable without enough attention to loss control. The results were poor loss ratios and the perception that clubs were poorly managed. Overall, this was not a good class of business to insure.

It’s not surprising, then, that many clubs had standard package products that were insufficient to cover their diverse risks. Workers’ compensation coverage was either in state insurance funds or with carriers offering limited options and high premiums that clubs tried to offset with large deductibles, risk retention groups and other self-insurance tools.

Helping an industry in crisis
Whe I attended a meeting of club executives in the Philadelphia area in 1993 (I was a retail agent at the time), the members were clearly frustrated with their limited options and high rates for workers’ comp. In Pennsylvania, as well as in New York and New Jersey, club insurance was in crisis. The members asked me to help them find new options, but what I found was that highly rated, financially stable domestic carriers wanted no part of the industry. We settled on a carrier in the emerging Bermuda market that offered an alternative risk financing solution.

While this offshore solution was a great step in the right direction for club insurance, it was important to attract highly rated domestic carriers that would provide a long-term commitment to the industry—being there for clubs, brokers and agents through good times and bad.

Today, the club industry has financially stable carriers that are no longer afraid of the club industry. They include Chubb (rated “A++”), USLI (rated “A++”), ACE (rated “A”) and Lloyd’s of London. The industry also has specialists that understand it, broader coverages that provide more protection, and improved loss control, claims and risk management services.

Of course, these changes did not happen overnight. Furthermore, the recent hard market has challenged many of the industry’s improvements.

Driving down losses
An important part of building long-term carrier support for the golf and club industry in the 1990s was improving loss control and risk management services. For example, when the Preferred Club Program started in 1994, a few carriers were willing to participate at a higher premium level, giving us time to institute improved safety and loss control procedures that would drive down their loss experience. In time, premiums would decline as well.

With experts who analyzed and understood the industry’s diverse risks, it was possible to implement effective risk management programs with improved loss control and mitigation that worked in conjunction with claims management.

An important part of club safety and loss control are on-site visits by loss control experts that identify areas for improvement, and examine and understand all possible areas of exposure. They use this data to set up safety procedures and determine best practices in the club industry.

Specialized safety manuals, designed by industry and risk management experts, are also helpful. These useful tools target the many risks that make golf and country clubs so complex to insure and provide step-by-step procedures to improve safety. These are among the loss control improvements that helped build long-term carrier support for the club industry and drive down premiums.

Broadening club coverages
Ten years ago, many club insurance packages were often standard and inadequate. With very few carriers willing to insure the industry, the coverage extensions for specific club needs were very limited. However, as the industry’s unique risks were identified and safety and loss control improved, coverages tailored to its needs were designed. They include:
• Tee-to-green coverage for all playing surfaces. This coverage goes beyond just tees, fairways and greens, to include cart paths, bridges, roadways, sprinkler systems, as well as damage from wind with no per hole limitation.
• Property coverage with emphasis on the clubhouse, which is an important part of a club’s revenue. Attention is paid to whether limits meet or exceed the most recent appraisal. It has also become standard for clubs to receive replacement cost value on golf carts and maintenance equipment.
• Directors and officers (D&O) and employment practices liability (EPL) coverages, written with separate limits and umbrella liability over both. Separate limits are important, since most claims come from EPL and can whittle away at D&O coverage, which covers board members, often prominent members of the community.
• Liability insurance, which has been broadened in many cases with errant ball, liquor, pesticide and herbicide, and pollution coverages. There are more specialty coverages available today to meet the new challenges of bio-terrorism, including airborne disease coverage. While participation has been limited through the first half of 2004, that could change quickly if there is one disaster and subsequent claims.
• Business interruption coverage protects clubs in the event that a fire or other disaster makes all or part of the club unusable for an extended period of time. This coverage has been selected by more and more clubs and should include an unlimited period of indemnity, since it may be more than a year until sales for weddings, corporate tournaments and other major events will return to pre-loss levels.

Staying disciplined
During the recent hard market, golf and country clubs, like most other industries, faced higher prices and, in some cases, reduced limits and coverages. Some carriers scaled back their coverage or have become less desirable to clubs due to ratings downgrades.

This trend gave way to many highly-rated regional carriers entering the market to capitalize on the club industry’s higher premium levels. However, keep in mind that they can be priced competitively for a period of time but typically lack the coverage options needed by the club industry.

In addition, some clubs have tried to offset rate increases by cutting back on their coverages or reducing loss control services. Remind your club clients how far the industry has come in the last 10 years—more comprehensive coverage, better loss control and long-term carrier support—so they don’t leave themselves without the coverage and services they need.

While renewal rates for the club industry this year are flat with some slight decreases, you should also consider that revenue at many clubs is down. Many clubs are not seeing the growth they want, so they’re looking for ways to reduce their budgets while trying to attract new members.

When we see clubs cutting payroll, we always make sure that risk control is still up to par and they’re not moving away from the safety improvements of the last decade that alleviated losses, or from the broad coverages that have given them better protection.

Encourage clients to choose top-tier carriers with broad coverages and effective loss control. Staying disciplined, the club industry can maintain stability, improved loss experience and broad coverage for years to come.

Philip J. Harvey is managing director of the Preferred Club Program in West Chester, Pa., a provider of insurance to the golf and club industry. The program will celebrate its 10-year anniversary in 2004.