High rates, employment practices merit attention.

We are all aware that the steady rise of commercial insurance premiums has been an area of concern for the club industry as a whole over the last several years. Unfortunately, there are still factors at work that do not point the way toward a general lowering of premiums any time soon.

Consider that at its heart, the insurance market is similar to other financial markets in that it is cyclical by nature and has traditionally vacillated from a "soft" to a "hard" market every seven to 10 years. For the insurance industry, hard market conditions include premium or rate increases, rising deductibles, capacity reductions, and constrictions in coverage terms.

The current hard market began in the fourth quarter of 1999 and its severity and duration has been prolonged by the economic downturn and the 9/11 attacks--which resulted in nearly $40 billion in insurable losses. It has also been exacerbated by the duration of the last soft market which witnessed carriers turning a blind eye to an underwriting profit as they competed for business by lowering premiums. Losses related to mold, continued dismal investment returns, the threat of terrorism, and expenses associated with asbestos reserves are other factors compounding the current hard market.

While there are some indications that some of the pressure may be taken off of property rates, it appears that liability rates will continue to climb. One way that your club can protect itself from hard market gyrations is to consider purchasing coverage from an association-sponsored insurance program. Our company, Aon, is the administrator for the National Club Association's endorsed Directors' and Officers' (D&O) Liability insurance program. This product's performance is a good illustration of the value that programs of this nature offer in a hard market. Consider, for instance, that our year-over-year premium increases have averaged 10-15 percent while outside the program clubs have faced increases of 25-35 percent of higher.

An area of liability coverage which should be of increasing concern to club managers is employment practices liability. Workplace claims against employers are growing in number and severity. The worldwide economic slump has been tough on job seekers, but employers are also feeling the pinch of the tight job market. As jobs get harder to find and keep, more former, current, and would-be employees are alleging wrongdoing in the workplace and demanding financial payment.

All employers are at risk, Jay Desjardins and Tom Hams, national product co-leaders for employment practices liability, part of the U.S. Financial Services Group, said. "In a good economy, if you're terminated or laid off from a job, arguably for reasons that are unfair, you go out and find another job," Hams said. "Why hassle with a claim? But if you've got no place to go, you might as well sue. That's been the trend."

Employees prevail about 70 percent of the time in U.S. federal court cases that go all the way to trial, according to the Equal Employment Opportunity Commission. Approximately 10 percent of all jury verdicts result in awards of $1 million or more.

Clubs can protect against workplace claims through employment practices liability insurance (EPLI). EPLI helps employers pay the costs associated with court judgments, settlements, defense expenses, and more. It applies to claims brought by past and present employees, job applicants, and administrative agencies, such as the Equal Employment Opportunity Commission. Coverage may also be provided for claims by third parties, including clients, vendors, and independent contractors. Covered claims include wrongful termination, sexual harassment, discrimination, failure to employ or promote, employment-related distress or invasion of privacy, defamation, and retaliation.

In another recent development, concerns about discrimination by nationality have grown since the terrorist attacks of 9/11. "Employers find themselves in a difficult situation. If they choose for legitimate reasons not to hire a person of a certain nationality, then they have the potential for a claim of failure to hire based on national origin," Desjardins said. "If employers do hire that individual, and that individual is mistreated by co-workers who may view that person as a danger, then the employer may be sued for fostering a hostile work environment."

Once packaged with directors' and officers' or other financial lines insurance, EPLI emerged as a standalone product about 10 years ago in the U.S. and more recently in other countries. New laws that allowed jury trials and created more protected classes have helped to usher in the new era. Insurers began to sell the insurance separately, first as a marketing technique, and later to cover growing exposures and losses.

As the insurance market has hardened across the board, several carriers have stopped offering EPLI. Only a handful of insurers underwrite primary coverage for large employers, although several carriers offer excess coverage, picking up only after huge losses have occurred. With buyers' premiums, deductibles, and risk-retention levels rising, EPLI is increasingly viewed as catastrophic coverage. Your club needs to work with its insurance consultant to make sure that your employment practices are in order, then buy high-deductible coverage that will protect you from big losses, while self-insuring day-to-day claims.

The volatility and costs associated with today's insurance market requires that you take a pro-active approach toward your coverage. One way you can do so is work closely with your insurance consultant on your needs and give him or her plenty of time to research alternatives as your renewal dates approach.

The insurance market will remain tight at least until the equity market yields more favorable returns on insurers' investments. That does not mean that your club can not take some of the common sense steps outlined above to help weather the hard market storm.