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Insurance Issues Update
In the past year and a half, the U.S. property and casualty insurance market has experienced several challenges: stockholder pressure to return to profitability, poor performance by its investments, and the tremendous changes in reinsurance availability and cost that the events of September 11 generated. On February 25th of this year, members of the first annual ACA Insurance Roundtable met in Washington, D.C. at the ACA National Conference to talk about changes and trends.
Trends observed in camp claims in the last year mirror those seen in the general population — medical costs, prescription costs, and emergency room visit costs continue to rise. There were fewer severe injuries, but the frequency of others was about normal. In addition, it was noted that there appear to be more nuisance claims, some of which seem to be driven by harder economic times.
Here is a summary of points on which there appeared to be general agreement.
An increase in general liability injury claims was discussed. Family and visiting days seemed to be providing a large share of the injuries. The ACA Insurance Roundtable theorized that, while safety procedures for campers were well prepared and regulated, visitors to camp were more likely to get into claim generating situations. Visitors were either not aware of camp policies and regulations or were from other age groups (such as younger siblings and grandparents) for whom the terrain and activities were not designed.
“Extreme” sports, either mimicking those seen on TV or self-created, were responsible for a number of injuries. Those discussed were described as frequently arising spontaneously during free time, and were, therefore, not as likely to be well planned or supervised.
Claims arising during power boating activities seem to have increased in the past few years, and they were described as being attributable to errors in judgment and/or inattention to speed. The training and procedures for power boats do not appear to be as carefully constructed and executed as they usually are for auto use, although the consensus was that they should be. (Note: ACA standards now require boat-specific training for all drivers of motorized boats, including personal watercraft.)
Proclivity for sexual misconduct continues to be difficult to catch before hiring. The currently available state background checks were described as being “Swiss cheese” in effectiveness, even though social service agencies have been granted more authority in this area. International staffing was identified as creating a special issue with no capability to do thorough background checks in the jurisdictions where the individuals spend most of their time. (International placement agencies are requiring applicants to provide evidence of a police record check from their local law enforcement. A copy is available to the director.) The current church publicity has brought the child molestation issue to the forefront again.
Staff injuries on ropes courses are rising, particularly among ropes course instructors and facilitators. It seems likely that “familiarity is breeding contempt,” or it may be that “third generation” in-house training is less effective, and key elements may be missed as staff pass on the training they received from professional trainers to other staff. (Note: ACA standards require that camps with ropes courses have a supervisor on staff who has certification or documented training and experience directly from a recognized organization or certifying body.)
Motor Vehicle Liability/Workers’ Compensation
Operationally, auto claims history seems to have improved, but vehicle use during staff time off remains an issue. Probable contributing factors postulated included late night fatigue, drinking, and too many people riding in backs of vehicles without seat belts.
Regular property claims were described as “normal,” and it was noted that they are potentially more controllable than liability claims. The number of collapse claims of older buildings caused by heavy wet snows may be declining not because of preventative maintenance, nor strengthening of structures, but because fewer of those older buildings remain in service.
There were at least three major fires last year. Outdated wiring is frequently responsible for the fires. The cost of replacing old rustic cobbled buildings is high, and there is an ongoing effort to assure that appropriate valuations for buildings are being made. Nevertheless, it was the sense of the group that most camps are insured at “replacement cost,” rather than “actual cash value at time of loss.” Because business interruption and extra expense coverages are often called upon when there are major fires, establishing reasonably accurate values is important to avoid “underinsured” penalties.
Trends in Recent Renewals
During the year-end renewals, round table members said they saw across-the-board price increases of 10 to 35 percent. More than one person said that increases were especially large in situations where a camp may have suffered repeated losses or where the premiums being charged were clearly insufficient in the recent past. A number of camps whose coverage was under priced last year experienced major sticker shock.
Increasing deductibles for liability coverage is probably not a helpful strategy for most camps, for several reasons. Camps would need to go to $5-10K deductibles to see any real decrease in premium costs. In addition, many underwriters do not want the risk of having a high deductible where litigation is possible and the camp may be handling the issue and loss. Underwriters see it as potentially increasing their risk if the claim is not properly handled from the very beginning.
High limit umbrellas may be harder to come by than they have been in the recent past, and 30 to 50 percent or higher increases in premium for less coverage were mentioned.
At least one of the ACA Insurance Roundtable members said that while there was a risk that publishing the above noted “generally seen increases” could turn them into “a fact” for all, the market (especially the reinsurance market) is still in flux. As an example, it was noted that over a year ago, during a workshop session held by the ACA Insurance Committee, one camp reported an increase in premium of 300 percent.
What Camp Directors Can Do
Faced with potentially astronomical insurance increases for which little or no provision may have been made in the tuition rates, there are still a few steps a director can take.
Reduce Property Coverage
One may choose to leave the individual cabins uninsured, choosing to retain that replacement risk and focus on major buildings, such as dining facilities. (This is not a risk to take lightly, as a forest fire could certainly damage or destroy several structures.) Nonprofit organizations often assume that they can raise funds to replace buildings if necessary and for-profits with decent balance sheets may find building loans/mortgages are a reasonable substitute for property coverage. But if business interruption or extra expense is needed, generally buying property coverage is not “avoidable.”
Fire Suppression Systems
Camps can control property insurance costs in a number of ways. Sprinklers in the dining hall were recommended to provide rate reduction (or at this time, at least “rate control”). Indoor cooking fire risk controlled with hoods and ducts with suppression systems are also practical and useful. National Fire Protection Association (NFPA) code 96 says you must have a suppression system, and NFPA 300 calls for a wet pipe system, though older systems are grandfathered. However, use of a wet pipe sprinkler over a dry one is generally preferred to address the “life” safety issue. (The sooner the water starts flowing, the more time for evacuation.) Wet pipe systems do need to be properly installed and maintained, of course, unrepaired water leaks may lead to unusual levels of mold.
Liability claims arising out of “toxic mold” may well replace asbestos and lead poisoning claims. Exclusions are being sought by many insurers not only for homeowners’ but also commercial liability policies, such as are sold to camps. Obviously, mold spores are common, but when dealing with children, camps must consider how parents will respond to seeing obvious mold in camp facilities when their children have asthma and allergies.
It was generally recommended that a competent licensed electrician should do all electrical repairs and the camp’s annual examination. (Even if the maintenance person is skilled, a “new set of eyes” may find something that another missed — before a gnawing squirrel or mouse does!)
“Off duty” auto liability exposure may be approached in a number of ways. Using a camp van or bus with a designated driver to take counselors out may decrease incidents, but it means that the camp has more “off-duty” risk. In addition, depending on the number of counselors in a camp-supplied van or bus, there is more chance that a greater number of employees will be in the same accident than if they were in individual automobiles. It would probably also eliminate doubt about coverage under worker’s compensation policies, but in many jurisdictions 24-hour coverage for resident camp employees is already presumed. Non-supervised nontraditional activities held off site create additional risk.
Leasing of facilities for group use also exposes the camp to additional liability as well as potential property damage. Usually the camp has less control of the group’s activities and the group is not as familiar with equipment and procedures. Requiring certificates of insurance for groups can help. The coverage should be at least $1 million or equal to the camp limit. (There was no discussion as to whether it is always to the camp’s advantage to be “additional insured,” “additional named insured,” etc., and there are competing theories on the matter.)
There was agreement that camps need to define responsibility and liability in the contracts, including addressing appropriate supervision of the group. It was suggested that the rental agreement define limits on the right to use the facilities. (Note: ACA standards specify that contracts address such supervision and responsibility concerns.) Hold harmless agreements (backed by insurance or other reliable funding) and releases can be helpful. If the risk is large, it was suggested that the camp include a lawyer in the drafting of the contract(s). It was also suggested that camps develop procedures to be followed in every situation; (e.g. when there is an accident, need to evacuate, or some other “unexpected” event, not just procedures for “the usual situation and operation.”)
Camps should also make efforts to control the risk of visitors on their site. Develop safety features for visitors, and set limits, and train staff as needed. Distinguish between campers, counselors and visitors in procedures.
Invite your underwriters to camp. When they see the procedures you follow and the precautions you take on a
day-to-day basis, it will help them understand that the risks of camp are subject to intelligent management that helps prevent and control losses. These underwriters are also helpful in helping you to better define risks at your camp and how you can go about reducing these risks.
Most insurance professionals had been predicting that another “hard market” was approaching. With appropriate adjustments to your risk management plans and sensible adjustments to your programs and coverages, your camp program should be able to survive this one too. ACA can provide you a resource in helping to answer your questions
if you should need it.
Originally published in the 2002 Spring issue of The CampLine.