Sports Business Gets Personal
The health and fitness industry has exploded in recent years, a trend that experts expect will continue.
Gym memberships jumped 18.6 percent in the United States from 2008-2014. More than 54 million Americans belonged to at least one of the 34,460 health clubs nationwide while total U.S. industry revenues increased 7.4 percent to $24.2 billion in 2014, according to the International Health, Racquet & Sportsclub Association, a trade association serving the global health club and fitness industry.
Jobs in the industry are expected to climb as well. According to the Bureau of Labor Statistics, fitness and recreational sports centers employed 533,200 people in 2014, and jobs will grow another 8 percent by 2024.
According to Scott Grieco, president of middle market at The Hanover Insurance Group, the overall sports and fitness industry is an $800 million market that is projected to grow by 6 percent through 2018.
Smaller, studio fitness and personal fitness training facilities in particular have seen steady growth.
John Sadler, president of Columbia, S.C.-based Sadler & Company Inc., agrees.
“We’ve seen tremendous growth with the number of smaller health clubs and exercise studios as well as with individual fitness instructors,” he said.
Sadler, whose firm specializes in insuring sports and recreation industries, says there has been a “big movement” in the health and fitness sector away from traditional “expensive machinery” and toward more high-intensity, interval training and bodyweight exercises with minimal equipment.
That trend is contributing to the growth in the studio fitness market.
Jennifer Urmston Lowe, national accounts manager at Sports & Fitness Insurance Corp., says the fitness industry has undergone a transformation in the past 10 years. “The traditional health club market has shrunk,” she said. “There are fewer big box (fitness clubs), but there are a lot more studios.”
Lowe has been insuring fitness facilities for about 18 years, but grew up in the fitness equipment manufacturing side of the industry. In her opinion, the birth of studio fitness facilities has changed the nature of the entire fitness industry.
“Manufacturers (of fitness equipment) are trying to market to these studios, but obviously, the studios are different risks than a traditional health club. I think carriers and programs like ours are trying to respond to that,” Lowe said.
Big vs. Small
The nature of the fitness world is constantly in flux, she said, adding that fitness trends and the popularity of studio franchises come and go. “One grows really big and then maybe shrinks back a little, but then another one grows and then it may shrink back a little,” Lowe said. “It really started with Curves for women, then Anytime Fitness and Snap Fitness and then CrossFit, Barre, the cycle studios, and now Orangetheory is huge.”
Big box gyms have suffered since 2008, according to Lowe, where studio fitness facilities have driven much of the market growth over the past seven years. One perk with the new trend, she said: “People tend to spend a lot more money in a studio than they would have spent in the big box gym.”
Another perk: studio fitness facilities are better risks than their bigger box siblings.
Lowe says studio fitness facilities don’t have the more concerning risk characteristics of their big brother counterparts, which makes them more attractive overall from an underwriting perspective in her view.
“One of the things to realize is that a lot of the exposures that are traditional to health clubs are not there in studios,” she said. Studio gyms generally do not have “wet areas” and some do not even have the locker rooms, according to Lowe. “They don’t have saunas and jacuzzis. They don’t have tanning beds. They don’t have a swimming pool. They don’t have (tennis/racquetball/basketball) courts. They’re a much different risk.”
Those differences make boutique studio gyms less risky to insure, she said. “The major exposure in any business is a slip and fall, almost always, even in the health club business. Wet areas are a slip and fall risk, steps (step machines) are a slip and fall risk, treadmills are a slip and fall risk,” she said. “The studios eliminate the wet areas that are a source of slip and fall claims in traditional health clubs.”
But one downside, according to the AJ Morgan, area senior vice president at RPS Bollinger Sports & Leisure, is size.
“Small studio fitness businesses are cropping up all over the place. The good news is those are business opportunities from an insurance standpoint,” Morgan said. “The problem is that those businesses are not always lasting; so you see these small studios crop up but not all of them make it.”
Also, from a profitability standpoint, the small studio sector is small premiums, he adds. “Right now, we think the rates are not adequate for the losses we’re seeing in that area.”
Market Conditions
The insurance market for sport and fitness entities — large and small — has been fairly healthy and competitive, the experts say.
“The market conditions are favorable,” said Sadler. Few standard carriers wrote business in this niche 20 years ago but over the past 10 years more and more carriers have entered. “Now, there are almost too many carriers chasing the limited premium volume in the niche,” Sadler said.
Currently, according to Sadler, profitable accounts are experiencing rate increases on general liability ranging from 0 percent to 8 percent. Excess accident policies are not driven as much by market cycles and the rates are much more closely correlated to individual account loss experience, Sadler said.
Exposures
“The biggest exposures from a severity point of view are sex abuse and molestation, as well as concussion/brain injury,” Sadler said. “The frequency claims continue to be spectator injuries from slips/trips/falls and participant injury from lack of supervision or hazardous facility conditions.”
Concussions in sports, which is prominent in the media today, is a topic agents should discuss with current and potential clients, says Mark Beck, senior vice president, Mass Merchandising Division, at K&K Insurance, which offers coverage for amateur sports teams, leagues, associations, camps, tournaments and other sports events.
“It’s particularly important for agents to make sure that the policies that they’re purchasing for their clients have the coverage that the clients are looking for,” Beck said. “If they are interested in protecting themselves against concussion claims, then the agent needs to be conscious of that and discuss that with the carriers, be it K&K or one of the others.”
Beck says concussion coverage in particular can vary by carrier. “We’ve seen in the marketplace that different companies are taking different approaches,” he said. “Some have outright exclusions for brain injuries, others are limiting it, and others are providing full coverage. Again, it’s just something the agent needs to be very conscious of.”
Beck says agents should pay close attention to coverage for allegations of sexual abuse or molestations when placing coverage for sports and fitness facilities because coverage may not be there to protect the insured for those allegations.
The concern over concussion related injuries could be driving change in the sport and fitness industry, according to Morgan.
“Kids are still playing sports, in fact more kids are playing sports, but now we’re seeing a lot of competition for those sports,” he said. “Football’s not growing and soccer may be leveling” while lacrosse on the other hand is still growing. “And depending on what insurer you talk to sports such as golf and even tennis are diminishing.”
But, Morgan says, there is growth in numbers and premiums and there’s also growth in businesses.
“I would say the number one thing I see, besides growth in studios, is growth in amateur sports and individual training businesses out there for specific sports,” Morgan added. That includes teams contracting with individual trainers to make their players better and stronger at their sport. “Those businesses are definitely growing.”
Multi-Sport Facilities
Brandon Schall, chief marketing officer and senior vice president of client services at American Specialty Insurance & Risk Services Inc., says another trend in the sports and fitness industry is the growth of multi-sport complexes.
“We’re seeing facilities trying to offer more rather than being specific to a singular focus. They’re really multi-purpose in scope,” Schall said. “Say 10 years ago you had a number of facilities that were indoor soccer facilities, and that was really their bread-and-butter. They offered soccer programming, but today those same facilities might have evolved into a sports training component. They might have batting cages in one area of the field. They may use it as an indoor golf driving range during the lunch hour or something like that. It’s really evolving.”
Some of these same facilities have expanded by adding a small sports bar and grill area. “So when you’re done playing your adult sports league, you might stick around with your buddies and have a couple beers,” he said. “So now you’ve got the liquor liability component to be aware of and underwrite.”
Multi-sport facilities often use subcontractors on site so agents should be aware of that exposure. “Maybe you’ve got a subcontractor in there that uses an area of the facility; the insured sublets that space to a subcontractor,” Schall said. “There’s definitely a continuing trend toward offering more appeal. Maybe there’s a turf field that could really be used for baseball practices, especially in the winter months, or batting cages at one corner of the facility to have an additional revenue stream. That space is really multi-dimensional.”
Waivers
The real problem with the sports insurance industry right now is lawyers, said RPS Bollinger’s Morgan, laughing. “There used to be assumed risk in sports, and now it’s just always someone’s fault … from an insurance perspective.”
Signed liability waivers are the first line of defense, said Beck, although their effectiveness to hold-up in court depends heavily on geography.
“There’s sometimes a misunderstanding that waivers aren’t enforceable,” Beck said. But enforceability depends on state and jurisdiction. “There are certain areas where it’s harder to enforce waivers, but they should be the first line of defense. There should be a waiver that you can point to that say, ‘Listen, you signed an agreement that says you understand there are risks involved with this.'”
Agents should make sure their clients understand that sports liability waivers are written properly and include all the right content, Beck adds. “That is where they should definitely consult a lawyer, because a lawyer/attorney is going to know that state’s particular nuances that are needed to make the waiver more likely to be enforced in any given situation.”
Beck even believes that it’s good practice to have all sports participants, even minors, sign liability waivers. “The parent or legal guardian is going to have to sign the waiver, but it’s still a good practice to have minors sign it as well. In many cases, it’s a little tougher to enforce a waiver that applies to a minor, because obviously the minor has until the age of maturity to still make claims.”
Morgan cautions that waivers are certainly not fool-proof in today’s litigious society but they help. “They’re helpful in some states for frivolous lawsuits, but if you’re going to do sports insurance, you call a lawyer and ask them whether they can get around a waiver when sued for a sports injury.”
It’s frustrating from a cost control standpoint when waivers don’t hold up in court, but it does happen, Morgan said. “We really see people looking to get a paycheck out of an injury that could have been expected as a result of entering a sport or a training session.”
Overall the market seems on track for future growth, said Hanover’s Scott. “This is a market that has significant upward potential given the additional focus surrounding the need to live healthier lifestyles and there’s a tremendous opportunity for agents who are looking to specialize in this industry.”
For Lowe, a fitness enthusiast herself, the sports and fitness insurance market is a great place to work.
“I’m passionate about fitness,” she said. “Fitness can change lives, improve the health and fitness of our country. But to stay in business and to keep helping people, they have to have the right aspects of their business in place, too, and insurance is an important part of that.”