Business Interruption Can Be Costly.

Camp directors sometimes overlook identifying the risks that might cause interruption of their camp business. Once they have identified the risks, many camp directors prepare incompletely for managing them. Because of the catastrophic implications resulting from an interruption of camp, directors should annually evaluate the risks of business interruption using the risk-management process.

The Risk-Management Process

The first step in the risk-management process is risk identification. Experienced directors will want to start this process themselves. However, getting input from different perspectives is one of the keys to a successful process, so include staff, board members, and other interested parties in the process. Approach the risk identification step as a brainstorming session. Develop your list of business-interruption risks without passing judgement or discussing the items. Don't prioritize the list, just develop a comprehensive list of possible situations.

There is a tendency to think only of events that cause physical damage to the camp property. The risk-identification process should be expanded to include other risks as well. While many business interruption risks are common among camp businesses, every camp has unique circumstances that require an individualized approach to the risk-identification process.

Examples of risks that might be on your list include:

* Destruction of your dining hall as a result of fire, tornado, or earthquake.

* Destruction of your entire facility from a forest fire, tornado, hurricane, or other catastrophic weather event.

* Illness associated with contaminated food or water.

* Incident of sexual abuse, neglect, or misconduct.

* Restricted access to your property or being asked to evacuate your location because of an order from a civil authority responding to an emergency on an adjacent property.

The second step in the risk-management process is risk analysis. What do we mean by analysis? Webster's dictionary defines analysis as "separation of a whole into its component parts." How do we analyze risk? By breaking the situation in which the risk occurs into several pieces. Consider the activity itself, where it is done, who does it, what can go wrong, and the interaction of the various aspects of the situation. This helps identify the causal elements and how they relate to each other.

Perhaps the best way to explain this step is with an example a camp director shared at an ACA conference several years ago. The circumstances are real, and the risk analysis and solution are brilliant in their simplicity.

One of the activities offered at the director's camp was miniature golf. The camp director had a management system that generated daily incident reports from all of the camp activities. While he was reviewing some incident reports shortly after camp opened, he noticed a pattern of minor injuries from miniature golf. Further analysis and investigation lead him to realize that campers were using their putters for other purposes while they were waiting for their turn. Some swung it like a baseball bat, and others used the putters like swords - typical behaviors for kids. It was misuse of the putters during this activity that was causing the injury.

The director felt the potential for injury in this situation was great, so he called a meeting of his counselors to discuss what to do and how to manage this issue. During the discussion, one counselor volunteered that he had no injuries among his campers during the miniature golf activity. The director asked why. The counselor responded that he let the campers use only one putter! When the director limited each group to one putter, the injuries stopped.

While this example does not relate directly to the risks of business interruption, it shows how one camp applied risk analysis and the risk-management process to solve a problem very effectively.

The third step in the risk-management process is risk evaluation. Generally, this step includes determining the likelihood that an event will occur often or occasionally and whether the injury or damage to the business has the potential for being minor or severe.

The fourth step in the risk-management process is selection of a method to manage the risk. Methods to manage risk include avoidance, reduction or prevention, retention or assumption, and transfer.

Don't Assume Risk Blindly

Most risks that cause business interruption have catastrophic or severe potential and don't happen frequently. This catastrophic potential is one of the reasons camp directors transfer as many business-interruption risks to an insurance company as possible. However, some business interruption risks are not insurable, easily avoided, or prevented. It is important to know this and plan accordingly. One of the risks you want to avoid as a risk manager is blindly assuming risk.

To avoid blindly assuming risk, you should take some time to learn more about the insurance coverage available for business interruption. Your insurance agent or broker can help with this education process. Following are a few thoughts to consider:

* It is important for a service business like camp to stay open. Emphasis should be placed on staying open at all costs. This means becoming an expert at developing and executing Plan B and knowing costs in advance. If you don't know the costs, how can you purchase an adequate amount of insurance?

* Business-interruption insurance is designed to replace income that would have been earned during the time repairs are being made to your buildings. The physical damage to your buildings must be from a covered cause of loss. Reimbursement is for "actual loss sustained." If you don't make a net profit - that is, don't sustain a loss of net income you may not have a business-interruption claim.

* Extra-expense insurance is designed to pay for increases in operating expenses that result from continuing makeshift operations while permanent repairs are made. This insurance will provide you with financial resources and help you stay open.

* Camps need a combination of business interruption and extra expense insurance.

Failing to identify the risks of business interruption and how to manage them could result in the failure of your business. Take the time to estimate how long it will take to resume operations in a worst-case scenario for each of the risks you identify. Determine how much additional expense you will incur in the process. Have your insurance agent or broker help you determine which of the risks and costs are insurable. Purchase the appropriate amount of insurance. Don't over-insure.

Camp directors should develop plans for staying open in response to those risks that are uninsurable. Establish a reserve fund to help you respond and stay open when you can't transfer the risk or when you decide to assume or retain it yourself. Never risk a lot for a little and, keep your eyes wide open by staying informed and involved in planning for business-interruption risks.

Ed Schirick is vice president and division manager of Frontier Insurance Group in Rock Hill, New York, where he heads their CampPRO insurance program. He is a chartered property casualty underwriter and a certified insurance counselor. Contact Ed at 800-724-3315 with your risk-management inquiries.