TEEING UP GOLF AND COUNTRY CLUB COVERAGE
Industry poised to strengthen in 2017
The years 2011 and 2012 were tough ones for the golf and country club industries located in the Northeastern part of the United States. First came a Halloween Nor’easter that brought down trees and power lines in areas where the leaves were still on the trees, causing insurers to pull back on limits for tree and debris removal.
A year later, Hurricane Sandy impacted a huge area, the bulk of the storm reaching from the Carolinas into the Ohio Valley, including Michigan, West Virginia, Kentucky, Ohio and parts of Indiana and Wisconsin. And again, insurers had to reconsider their CAT exposures in the Northeast, according to the 2013 NAPCO State of the Market report.
Last year was a relatively mild year when it comes to storm damage. Yet the golf and country club insurance market is still in recovery. “The golf club industry has finally stabilized after realizing highs, both in terms of rounds played (participation), and numbers of golf facilities,” says David Harnois, CCM, CPL, executive vice president of Affinity Club Underwriters. “Before the
2007-2008 recession, participation peaked at around 30 million andtoday has flattened out to around 25 million. Additionally, according to the National Golf Foundation (NGF) there are approximately 15,200 facilities today, down from pre-recession highs of approximately 16,000.”
That echoes what Robert Mulhern, executive vice president of the Preferred Club program at Venture Programs, has seen. “Four years ago, we saw more clubs close than open,” says Mulhern. “That has stopped, but we’re not seeing new clubs open up. Still, we aren’t seeing as many of them fail. There’s been a stabilization in the marketplace in the past 24-36 months that we like.”
Brian Himmer, assistant vice president of underwriting for Philadelphia Insurance Companies, says the industry is in a good position to strengthen in 2017. “We have seen many clubs gain more financial strength and invest to upgrade facilities, focused on enrichment of current amenities or creating new revenue streams and offering new amenities,” he says.
Trends and challenges
Because the last five years were challenging from a revenue perspective, says Mulhern, country clubs are doing their best to create more revenue streams. “Clubs are holding more banquets and weddings. Activities that clubs are adding include new amenities, such as babysitting, family-oriented activities, wine tastings, summer camps, and golf and tennis clinics for children.” The goal: to get members to use the facilities more often.
However, such additional amenities, adds Mulhern, are creating additional exposures. “For example, wine tastings bring a liquor exposure, and child care brings safety exposures,” he says.
“During an exciting expansion, a club can quickly lose focus on risk management techniques that are easy to implement and are at low to no cost to the club.”
Assistant Vice President of Underwriting
Philadelphia Insurance Companies
Other exposures include allowing for mixed use of the facilities, says Mulhern. Snowboarding, cross country skiing, and winter sports can be of particular concern. “Clubs are often closed or have minimal staffing, and there are fewer people out on the course,” he says. “A member could have medical issues and they’re alone on the property. We just want to make sure the clubs and the agents are thinking about those exposures when adding the amenities to the club.”
Yet balancing the revenue side with the safety side has become a tightrope walk, say the experts. Harnois says that country clubs are trying to define the balance between sustaining levels of participation and appealing to younger generations. “The struggle between traditional values (dress codes, for example) and providing a comfortable and welcoming environment for Millennials and other new participants to golf (women and children, for example) will remain a challenge.”
Another challenge: weather. Both Harnois and Mulhern say that costs associated with weather changes have impacted country clubs and will continue to do so. Mulhern points to tornadoes in Houston as an example of weather events in unexpected places, events that he says have caused his company and others to pay out millions in claims. “Areas that are not normally susceptible to this wild weather are now seeing it more frequently than in the past.”
Even drought has become a significant claims driver. Harnois says courses struggle to contain costs associated with greener maintenance practices, including chemical reduction and the introduction of drought-resistant turf species, “recognizing that water in many parts of the country is an issue.”
The focus then, says Himmer, should shift to the risk management program. “During an exciting expansion, a club can quickly lose focus on risk management techniques that are easy to implement and are at low to no cost to the club.”
State of the market
Brian Thiemer, program underwriting manager for Affinity Club Underwriters, says the insurance market remains stable, with pricing and coverage availability dependent on natural disasters and how they impact the market. Overall, he says, carriers are increasing rates for the club class of business. “Catastrophic losses, as were experienced during Hurricane Sandy and the recent wildfires in California, for example, will continue to drive the market, both in terms of pricing and available coverage options. Both the property and management liability (D&O/EPL) have seen large increases in premiums and deductibles over the past three to five years, due to the aforementioned weather-related claims, as well as other market influencers.”
The number of players remains steady, though there are some carriers testing the waters, albeit often for short periods of time. “We’re seeing carriers hopping in and out of the marketplace,” as they test the market and get hit with claims, says Mulhern. “They’ll either increase pricing, making themselves not competitive, or they’ll stop writing the business.”
Part of the reason for new business leaving the space could be carrier experience, or lack thereof, says Himmer. It makes choosing the right carrier that much more important, he stresses. “Not many carriers specialize in the wide variety of new operations clubs are looking to pursue today. While competition can benefit the consumer in the short run with lower premiums, new market entrants can lack experience in risk management, claims handling, and underwriting practices. The last thing a club decision maker wants to have is a short-term savings on premium but when facing a large claim have to fight their insurance program carrier for payment,” Himmer adds.
The trend Mulhern sees in the next 24 months is “a reduced supply of carriers because of the losses to outdoor property. You’ll see a trend where pricing has to increase. Even though the market is soft, and golf is on the softer side, it’s trending harder than a standard class, and all because of the outdoor property exposure.”
He adds that some rate increases are occurring, but there is no reduction in coverage yet. However, “that’s the next step. If clubs are coming out of a financial crisis and they’re stabilizing, they don’t have additional money to pay premiums. The first thing to go is coverage. They’re going to start reducing their limits,” he says, “in order to save money.”
Advice for agents
That’s where agents and brokers can help positively impact both the client and the industry. Agents should understand what their clients are offering, say the experts, and should know what additional risks are involved. “Agents can explain that the insurance program can offer more than the coverages found in the policy,” says Himmer. He suggests a risk assessment guided by the carrier to ensure that the full scope of the club’s risks are understood and accounted for.
Mulhern recommends that agents and brokers become involved with local associations serving the country club industry. “The Club Managers Association of America has local chapters that agents can get involved with. Also, the Hospitality Finance and Technology Professionals (HFTP) includes club controllers groups—the CFOs and accounting people. Agents,” he says, “should get up to speed on how to fulfill the needs of these groups.”
Harnois says agents should strive to be better partners with their clients. “Being a good partner means understanding your existing and prospective clients’ needs, as well as current and future insurance needs. Different types of golf facilities (private, daily-fee, municipal, and resort) have different economic concerns that must be understood in order to properly advise.”
Each expert recommends that agents and brokers look for carriers
that specialize in the industry. Mulhern says to look for a carrier that offers all lines of coverage. Agents should be looking at specialty markets that have exclusive arrangements or specialized coverage for golf and country clubs, and look to carriers that offer all lines of coverage to avoid potential gaps.
Experience matters, says Thiemer, and it’s critical to understand how the carrier will respond. “How a company handles claims is perhaps the most important aspect of any insurance relationship,” says Thiemer. “Companies and MGAs that have developed real industry expertise are best positioned to most effectively and efficiently handle claims.”
Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.