Directors want to know. (Risk Management).

Camp directors have asked the following questions as the result of certain events and experiences. We feel it is important to share them now, since they are infrequently asked. However, we see these as developing issues, which camp professionals need to understand if they are to manage them successfully in the months and years ahead.

My camp insurance underwriter is concerned about insurance to value on several of my buildings. What is insurance to value and what impact does it have on my insurance?

Insurance to value is a property insurance underwriting concept, which focuses on insuring your camp buildings and other real property at their full replacement value.

There has been and probably will continue to be some confusion and tension over this issue. On the one hand, policyholders want to transfer their risk of damage to and loss of use of their property at the lowest possible cost. If you talk with some underwriters, they point out that this goal can lead to some policyholders understating their values to keep costs down.

In my experience, much of the understatement of values in camping comes from lack of awareness. But some insurance to value problems are the result of inadequate attention to this issue by insurance agents and insurance companies. In the final analysis, the policyholder is responsible for buying the proper amount of insurance to adequately protect assets and to ensure that a sufficient amount of capital is available from your insurance proceeds to rebuild and recover following a loss.

Another aspect to this issue involves finding authoritative sources to help directors estimate their full replacement values. Some underwriters use independent services such as Marshall & Swift, or the Boeckh valuation systems. But, this task becomes more difficult because of the uniqueness of many camp buildings. Disputes can develop over the square foot replacement costs when valuation models don't neatly fit the unique structures at camps. This can often be overcome with some discussion. The best source of replacement values, according to some directors, may be your local contractor. Local contractor replacement cost estimates eliminate some of the problems with the valuation models and can accurately reflect the cost of labor and materials in your area.

Regardless of which resource you use to calculate the replacement value of your real property, it is vitally important to carry insurance to value. Which valuation method you choose -- replacement cost or actual cash value -- depends upon what you want from your insurance following a loss.

If insurance to value is neglected, your camp insurance underwriter might be unwilling to provide you with certain coverages or considerations such as agreed value endorsements or replacement cost coverage. The underwriter might also charge higher rates based upon subjective judgements and conclusions from their analysis of your property values. In addition, if your policy has a coinsurance clause, you may not comply with its requirements. If there is a coinsurance deficiency, you might not receive full reimbursement for partial losses to your property. Finally, depending upon how your insurance is written, you may not be fully indemnified if you suffer a total loss to a building, for example.

My insurance agent has recommended that I purchase property insurance for ordinance or law. What is ordinance or law coverage and why should I buy it?

A standard property insurance policy covering camp property excludes any expense that is the result of the enforcement of building ordinances or laws regarding construction, use, or repair of property. For example, some states have a building code regulation, which requires demolition of any remaining part of a building not in compliance with current building codes, when 50 percent or more of the structure has been damaged by some event. Unless you purchased appropriate ordinance or law coverage from your insurance company, you would not be reimbursed, in this example, for the value of the undamaged portion of the building or for the cost of demolition.

In addition, the increased cost of bringing the new, replacement building up to the latest codes such as those required by the Americans with Disabilities Act, the National Electrical Code, local building codes, and latest Health Department regulations would not be covered.

Directors should buy ordinance or law coverage only if they intend to replace their buildings. This ordinance or law exclusion is an example of the 'fine print" in insurance policies. The gap in standard coverage underscores the fact that replacement cost insurance merely replaces the building with the same or similar material. Replacement cost insurance does not include the cost of building code deficiencies or updating or improving plumbing, electrical, and other elements of your building with superior materials to meet the latest requirements.

Ordinance or law coverage is becoming more important to camps because new national and state codes are being established to standardize building construction requirements. Compliance with these codes will be required for renovation, repair, and new construction as they are adopted across the country. Recognize that as code enforcement officers become more active in our communities that some camp buildings could be identified as not meeting these new codes. Some corrective action may be mandated by these state and local officials depending upon the scope of the code issues in question.

A property insurance policy without ordinance or law coverage will leave you exposed to financial loss, which must be addressed in your future risk management planning.

How would my loss of income and extra expense insurance respond to camp being shut down by order of civil authorities because of a disaster like the World Trade Center attack?

The standard policy for loss of income and extra expense extends coverage to include loss caused by action of civil authority that prohibits access to your camp premises when there is direct physical loss or damage to property, not at your camp premises. The damage at the other premises must be from a covered cause of loss. This applies for only up to two consecutive weeks from the date of the action and is insufficient at any time, but especially during the summer.

Generally speaking, there must be direct damage to your camp premises for the Loss of Income and Extra Expense insurance to operate. This extension of coverage for up to two weeks for the order of a civil authority did not contemplate the events that took place in New York or Washington. Underwriters may be willing to consider extensions of terms beyond the two weeks under some circumstances. There is still some uncertainty in connection with the risks involved, so underwriters may be slow to respond to this need. However, your inability to transfer this risk does not eliminate it as a potential threat to the success of your business. It must still be addressed in your risk management plans.

What are your plans if access to your camp is denied by order of a civil authority? Look into insurance to value, and ordinance or law coverage before your next policy anniversary. Take some time to plan your response to an order of civil authority that denies access to your camp property. Seek advice and perspective from your staff and trusted advisors. Give yourself adequate time to make any appropriate changes before next summer. Take care of yourselves and good luck!

Ed Schirick is president of Schirick and Associates Insurance Brokers in Rock Hill, New York, where he specializes in providing risk management advice and in arranging insurance coverage for camps. Schirick is a chartered property casualty underwriter and a certified insurance counselor. He can he reached at 845-794-3113.