Managing risk: coping and surviving a "hard" insurance market. (Risk Management).

The insurance industry has colloquial terminology that can be baffling at times. The term "hard insurance market" is not one of them. It is a term camp directors and other business owners are hearing a lot these days from their insurance agents, brokers, and underwriters. But, it doesn't take long for consumers to learn what the term means. Everyone immediately has a clearer understanding of the term's meaning upon receipt of his or her 2002 insurance premium.

A hard insurance market is not consumer friendly. Typically, rates are up, new exclusions may be imposed, and limits may be reduced. In addition, certain coverage readily available before the change may no longer be available, and certain types of businesses may find it difficult, or impossible, to find acceptable insurance arrangements. The current hard insurance market is all of this and more.

Insurance rates, coverage terms, and limits have been under review by underwriters since late 2000. Insurance company rates of return in the stock market have been well below the expectations of investors. A long period of competition had taken its toll on the industry's earnings. The analysis and plans for change in the insurance business were well under way before the terrorist tragedies of September 11th. These events created new uncertainties and risks for underwriters that were previously not identified. The impact of these events and the new realities post September 11th definitely accelerated and exaggerated the changes already taking place in the insurance market. The resulting impact is now being felt throughout the insurance buying public.

Whether your crystal ball was clear and you saw these changes coming in the insurance marketplace, or you were surprised, is not important now. The environment for business and for living has changed -- further influenced by a slow economy unrest in the Middle East, and our war on terror. Recent reports concerning the problems of sexual misconduct and maltreatment of children involving one of the world's largest religious institutions hasn't helped either. The departure of two underwriters, one in 2001 and another in 2002, who focused on the camp market as a specialty, in particular, have further adversely impacted the camp insurance market.

The net result is a restricted market -- fewer underwriters pursuing the camp marketplace, with less appetite for certain risks, and increased uncertainty about the future. These circumstances spawned double digit increases in primary insurance costs for some and new exclusions for terrorism and mold. Other camps have seen double and triple digit increases in the cost for catastrophic liability along with substantially reduced limits and "claims made" policy forms with limited extended reporting period options, among other changes.

What's Next?

Risk management is about managing uncertainty. Insurance is just one of risk management's tools. The five steps in the risk management process provide camp directors with the means of managing these changes -- coping with the new risks and surviving the hard market.

Here are some survival tips:

* Choose a knowledgeable insurance agent or broker who works on your account as a priority. You need the most knowledgeable, experienced advice you can find in the face of these unstable, uncertain times. If you don't think you are a priority with your agent or broker, fire him or her and get someone who responds to you as a priority client. Challenge your agent or broker to recommend ways to reduce insurance costs -- without sacrificing vital protection.

* Know how your insurance is priced. Ask about discounts and if they have been applied to arrive at your final insurance cost. Insurance rates are averages. Underwriters have the ability to increase or decrease the rates within a certain range. Their deviation from average is based upon their perception of your risk as it compares to their mental image of an average risk. Negotiate with your agent or broker about credits. This may uncover some misperceptions your underwriter has about your risk, which may be costing you money.

* Invest in loss prevention and safety. This is part of the third step in the risk management process, risk control. Ultimately, these expenditures should pay big dividends by increasing the controlled risk environment at your camp in the long run. Camps who have made few or no claims will fare better in a hard market than those with more claim activity. Be a good communicator with your agent or broker about these loss prevention and safety initiatives. Investments in these areas should be viewed positively by underwriters and help you paint them a picture that your camp is an above average risk deserving of their best pricing. When money gets tight in organizations, investment in loss prevention and safety is often sacrificed for other purposes. Now is not the time to discontinue risk control funding and efforts.

* Know your underwriter. Invite him or her to camp with your agent or broker. This is a time for you to put your best foot forward and demonstrate how your camp is better than average. If you aren't ready to do this, postpone the visit until you are. Alternatively, find out if your underwriter attends camp conferences and, if they do, introduce yourself. Talk about risk and what he or she sees as concerns now and for the future. Try to get some "window" into his or her thinking to help you manage these risks better in your camp. Share your insight with your agent or broker to avoid surprises and manage your insurance better. Advanced planning and discussion with your agent prior to your renewal is especially important if you have had claims. Be proactive!

* Think twice about introducing new programs, trips, or activities -- if they involve adventure or perceived risky exposure. Camps with emphasis on tripping and adventure have been hit harder by this new insurance market. Many have lost their insurance and found it difficult to find replacement coverage. Camps with a wider variety of programming have fared better. Touch base with your agent or broker and have him or her talk with your underwriter about your new program plans before investing time and money. Talking with your agent, broker, and underwriter probably seems like an extra step, but it could save you from embarrassment. The extra step might even save your job. Find out if your insurance company will underwrite your new program or activity before you act. This is another great opportunity to clear up underwriter misperceptions.

* Review, revise, and renew efforts to conduct background checks on all staff and volunteer workers. Not all states permit fingerprint criminal background checks. If your state permits access to these databases, make plans to develop and implement a fingerprint checking program if you haven't already done so. If your state does not permit fingerprint background checks, take the time and spend the money to do name or social security record checks. The entire sexual misconduct issue is receiving increased scrutiny from underwriters in light of recent events. Sexual misconduct is driving some of the underwriters' perceptions of camps in our opinion. Camps must take all responsible and reasonable steps to reduce the risk of sexual maltreatment of children in their care by using the available background record checking resources to screen staff and volunteer workers. These efforts will eventually help improve the underwriter's perception of risk.

* Consider getting proposals from other insurance companies. This is a time-consuming process, which must be managed closely. As a result, it is not done often. If you haven't taken a look at what other insurance companies can do for you in the last three years, it may be time for you to consider looking into other proposals before your next policy anniversary.

Remember, the risk management process provides camp directors with the tools to control and manage risk in this new and uncertain environment. Review your plans and take the time to identify any new risks, which may have developed resulting from underwriters' actions in this hard market. Decide which steps you can take to retain, transfer, reduce, and avoid these risks. The suggestions above and the actions you take will help you reduce the overall cost of your insurance program. Get competent, professional advice from risk management and insurance resources, and you will cope and survive.

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 be reached at 845-794-3113.