Broadening Club Coverage in a Softening Market

August 8, 2005

The softening market has provided some welcome price relief for golf and country clubs, which had weathered significantly higher premiums in the last few years. To agents and brokers writing golf and club business, this is an opportune time to increase coverages that may have been reduced in the past to offset high premiums.

That’s what Mark Bauer, senior vice president of Brady, Chapman, Holland & Associates Inc. (BCH) in Houston, said his agency has done with some clients. While the hard market of recent years had led clubs to reduce coverage and limits, Bauer said BCH has helped some clubs increase coverage, while still reducing their premiums.

“Our main goal as a firm is to be a ‘Trusted Advisor’ and assist our clients in managing their total cost of risk,” Bauer said. “We do this by developing a long-term risk reduction plan that includes broad coverage and our specialized loss control services. Through this approach, clubs should improve their bottom line profits. Today’s softening market is an excellent opportunity for agents to talk to their clubs about increasing coverages that may have been inadequate.”

While private clubs have maintained strong membership, it appears the industry as a whole is still slower than in recent years. The number of new courses in development is down significantly and rounds were down 1.6 percent through the first five months of 2005 compared with a year ago, according to data provided to the National Golf Foundation by golf course operators around the country. Private clubs fared worse than public courses.

As a result, many clubs have dropped their initiation and daily fees to generate volume, and have seen their revenues and profits fall. So rather than increasing coverage in the soft market, clubs may be looking toward insurance as a budget line item that can be cut.

That’s where the club’s agent or broker can help. Agents may not only write club business, but also maintain memberships at a club or sit on the board. It’s their job to remind the management that without proper coverage, just one loss may create financial damage from which it will take years to recover.

To ensure a club is getting the coverage it needs, agents need to explain the implications of reduced coverage and lower limits, and the importance of proper loss control. Don’t let clubs go without necessary coverages because they make their insurance a budgetary item.

D&O and EPL coverage

The most significant liability exposures faced by a club is related to its board, with discrimination and slander the primary causes of loss. These claims primarily result from denial of membership to a prospective candidate. This makes adequate directors and officers coverage a must.

In addition, legal action by current and former employees is on the rise, meaning that employment practices at clubs must meet high standards and employment practices liability coverage must be maintained.

When securing D&O and EPL coverages, consider the lowest deductible available among the highest-rated carriers and have them written with separate limits and umbrella liability over both. Without separate limits, claims from EPL can whittle away at D&O coverage, leaving the board vulnerable. It’s also important to avoid gaps or overlaps of coverage between policies by reviewing and coordinating the D&O policy with other standard liability lines of insurance. Gaps or overlaps may occur with third party discrimination coverage, fiduciary liability coverage and professional liability.

Course coverage

“Tee-to-green” coverage is a common and essential coverage seen in policies from almost every insurance carrier. But its meaning can vary. Make sure this policy includes the words “all playing surfaces.” Seek $1 million in coverage with no per-hole limitation.

The biggest “peril” a club faces is wind and many coastal clubs have difficulty obtaining this coverage, especially “peril of wind.” For such issues, be sure the club has debris removal to deal with trees immediately after damage occurs.

It is also important to cover the replacement costs on carts and maintenance equipment. Most of a club’s maintenance equipment will be older and the replacement cost option will lessen the financial impact of depreciation.

The clubhouse

The most important physical asset of a club is the clubhouse, so make sure the club’s short- and long-term revenues are protected. Property limits should meet or exceed the club’s most recent appraisal.

Included with the package should be a business interruption policy to protect the club in the event of a fire or catastrophic event to the clubhouse. It is one of the most difficult insurance coverages to understand and for which to set appropriate amounts.

When considering appropriate business interruption coverage, plan for the maximum potential loss, which always includes the loss of the clubhouse and its revenue-generating operations-the membership/fee organization, restaurant/banquet facilities, retail/pro shop and program operations. Contingencies should also be made for damage to the course and any other property that affects income and expenses. Make sure the policy includes an unlimited extended period of indemnity.

Liability

Errant ball coverage is necessary to cover the damage to property or person as a result of a poorly hit ball. In fact, property damage and serious physical injuries from errant golf balls are on the rise and there are no signs that the frequency of these incidents is going to decrease any time soon.

There have been double-digit increases in the frequency of insurance claims for injuries resulting from errant balls with dollar amounts for bodily injury claims an average of eight times as high as a property damage claim.

If a club hosts banquets, weddings and special events, then liquor liability is a must, and this coverage should have full umbrella liability limits.

Considering all the landscaping and greens keeping required by clubs, herbicide and pesticide coverage also is needed, including full pollution options.

Other essentials include weather insurance coverage to protect against an abnormally high number of rainy course days and umbrella coverage for catastrophic events.

Tournaments and special events

Special events can be a significant revenue-generating source for clubs but carry considerable risks due to unforeseen circumstances. These include not only bad weather, but also terrorist attacks, earthquakes, forest fires and more. Clubs need event cancellation coverage and weather insurance coverage.

When looking at tournaments, they clearly are good for the sport, help the community and enhance the host club’s prestige and reputation. Their revenue helps pay for some clubhouse remodeling, course improvement or routine maintenance.

But tournaments also present clubs with an added level of risk and exposure, so working with knowledgeable loss control experts is essential to reducing the potential risks.

When preparing for a tournament, it’s important that the club’s insurance partners work to clarify overlapping responsibilities, plan for all contingencies and confirm that the club has adequate insurance for the event.

Insurance partners

When working with a club to write the coverage it needs, work with an established club insurance program and carriers that are experienced, committed to the industry and have the broad coverage needed.

Also, ensure that there are specialized loss control services and proper claims handling. Most states require that the primary carrier provide some form of loss control service, but carriers tend to focus on the losses that impact them. Look for a partner that will help minimize all claims from happening, whether covered by an insurance policy or not.

The outlook for clubs

We expect growth in the club industry to be stagnant for about three years with continued pressure on club revenues. It’s an agent’s job to make sure that the club does not bend to the profit pressure and view insurance just as a line item in the budget that can be cut.

Make sure they have broad coverage and emphasize the importance of sophisticated risk management services.

In today’s market, agents and brokers should be able to reduce premiums for clubs, but also look at it as an opportunity to improve their coverage.

Rob Mulhern is director of the Preferred Club

Program in West Chester, Pa., a provider of
insurance and loss control programs to the golf

and club industry.

Topics Agencies Claims Profit Loss Pricing Trends Property

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Insurance Journal Magazine August 8, 2005
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