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By Amy Durham
 The
insurance industry
took a hit in 2005. In fact, it took three. With the damage from
Hurricanes Wilma, Rita, and Katrina, insurance companies worldwide broke
their previous record in losses, a record set back in September of 2001.
Now, as premiums hit an all time high and the 2006 hurricane season is
predicted to rival the last one, how can facility managers control risk
and still fill seats?
When terrorists struck the World Trade Center and Washington D.C. on
September 11, 2001, the insurance losses were estimated at $40 billion.
The impact on the industry was massive. With the total losses from all
three 2005 hurricanes nearing $60 billion, insurance carriers around the
world are reeling, and will be for some time to come.
Unfortunately, after paying out billions of dollars to claimants
suffering hurricane damage, many insurance carriers are placing wind on
a separate policy, as flood has always been. But this trend does not
just affect the people doing business along the coastal areas; it
applies to all high risk factors. “The same reinsurance carriers who
cover hurricanes also insure earthquakes,” says Joe Addison, Managing
Director at Aon Entertainment Practice Group. “Due to the capital crunch
that occurred with the hurricanes, the premiums go up with anything high
risk.” Facility budgets are bearing the brunt of a transformation in how
the world market addresses risk management.
 Insuring
Venues in a Hard Market
Back in the 90s, insurance was a soft market. Today’s increasingly
exorbitant costs make balancing a budget and controlling risk a
difficult task for facility managers. With the hard market comes a
renewed need for the insurance professional, the broker. Addison says,
“It’s like when I first started working and I wasn’t making a lot of
money, so I could do my taxes myself. It was easy. I could use Turbo Tax
and it was simple. Now in the more complex world of insurance, with
issues such as subcontracting and contracting, terms, deductibles, and
retentions, it’s more complicated. Now, I have a wife, three kids, an
investment account, and I wouldn’t do my own taxes. I need a
professional.”
As venue managers are faced with reduced coverages and record high
premiums, they need help in determining how to get the most out of their
insurance dollars.
Managing Risk with Insurance
“Facility managers have a tough job,” says Addison. “Because of the
competition for full seats, it’s hard to budget for the expense of
insurance.” Now that effective coverage is in the spotlight more than
ever, this adds significant cost to venue management. As Addison says,
“Insurance is a harder piece of the equation now.”
Because insurance is based on the facility’s risk profile, it makes
sense to keep this risk as low as possible. “The facility manager’s job
is very complicated,” says Paul Halloran, Senior VP in Property/Casualty
at Mesirow Financial. “There are so many types of events: sports,
concerts, conventions, and the breaking down and building up to
transform the venue for these events.” As a broker, Halloran sees the
overall insurance picture at a venue in terms of management’s approach
to risk. “The whole thing comes down to management attitude. How does
management treat safety and security? You can walk through a venue and
quickly see it. Either they are taking it seriously or they aren’t.”
Management’s approach can make all the difference in insurance costs. It
is vital to have controls and procedures in place that will prevent
claims, not just good insurance coverage to take care of those claims
when they happen. “Remember,” says Halloran, “one bad experience can
impact you for many years going forward. A venue can have great
management and good experience that gives them a low premium, and one
event can spoil that and drive it up the following years.”
Controlling Loss
Obviously, facility managers have no influence over events like
Hurricane Katrina. But they do have control over how well they are
prepared for other claim causing factors. “A major concern is loss
control,” says Halloran. “There are so many people in and out,
participants and spectators, it’s important to know if the facility is
well taken care of.”
Security and guest services are always major issues in determining
coverage. “We recommend that venue managers look outside to do that,”
says Halloran. Firms specializing in crowd management, such as
Contemporary Services Company, have a broad knowledge. Halloran advises
that all managers consider subcontractors. “For things like ushering,
bag checking, and ticket taking, insurance carriers are more likely to
look at a venue with this extra service through a subcontractor.”
Other areas a broker will consider include valet parking or parking lot
security, in-house ticket sales, security personnel, emergency medical
personnel, workers compensation, alcohol service and training, and
maintenance.
According to Halloran, the maintenance of the venue is one of the most
important aspects of loss control. “The biggest thing we see in terms of
liability, aside from people getting hit by baseballs, broken bats, and
hockey pucks, is slips and falls in the bathrooms that are unwitnessed.”
So not only does plumbing need to be good, but accidents must also be
cleaned immediately and reported properly. Proper documentation during
an accident investigation can actually save money in increased premiums
down the line.
Covering Terrorism
Terrorism is still a big issue. When Congress passed the Terrorism Risk
Insurance Act in November of 2002, it was set up to give reinsurers a
break from the enormous costs of September 11. Reinsurers are the
companies who insure the insurance companies, and they expected that
with three years of help from the federal government, the industry could
reasonably be back on its feet by the end of 2005. Neither the
government nor the insurance carriers could have anticipated $60 billion
in losses from natural disasters just as the Terrorism Risk Insurance
Act was set to expire. So Congress extended the assistance for another
two years.
“Because of 9/11 and terrorism coverage that’s now behind insurance
policies, insurance companies are very cautious that if a venue is a
target for terrorism, the management is taking that seriously,” says
Halloran. A facility manager must have some basic strategies in place,
such as bag checking, delivery screening, proper credentialing, and
other guidelines for safety and security. “You used to see open bottles
of condiments in venues, where it would be very easy to taint that food
supply and create a pandemic. Now you get rip-open packages of ketchup.”
Selecting a Broker
There are some excellent tools provided by the IAAM for facility
managers to ensure they are covering the bases in safety and security,
such as the ViSAT. But a checklist is not enough when it comes to
getting adequate insurance coverage for the right price. “Bring in
someone familiar with the industry to revise existing policies and
procedures,” says Halloran.
According to Addison, the tendency to ask for help is increasing in this
new hard market. “From the broker’s perspective, we’re seeing a lot more
people asking advice. Instead of asking how much something costs and
going for the cheapest coverage, they want ideas and creative solutions
to risk management. They ask things like ‘How can I squeeze my dollars
to get the least amount of exposure with the highest protection?’”
“Before selecting a broker, have good quality information,” says
Addison, “especially on the facility and the property. Know what kind of
protection you need.”
Halloran advises picking a broker with specific venue experience. “For
loss control, you want people that can help you put procedures in place
and pick out potential sites that will cause claims.”
Addison suggests that facility managers have an ongoing dialog with
their broker. “Think of your broker as an advocate for you,” he says, “a
business partner, not just an insurance placer.”
Be sure to select a carrier that has experience in the marketplace, a
reputation for operating in sports arenas and entertainment venues. Make
sure they have the financial strength to pay claims. “The cheaper price
isn’t always the best deal when it comes to loss control,” says Halloran.
Getting the Best Coverage
“The main thing,” says Addison, “is to try and minimize claims by doing
the right type of loss prevention. Then when you do have a claim, make
sure you get the right documentation.” For the most part, facility
managers are concerned and actively seeking solutions to protect their
venues and their people. “These guys have it together,” says Addison.
“They do a great job of communicating through organizations like the
IAAM.”
So communicate with the people in the know. Ask questions. Talk to the
pros about solutions for high premiums, loss control, and insurance
limits. As Addison says, “We place a billion dollars in coverage a year.
We know what’s going on out there. Wouldn’t you like a shortcut to it?”
Amy Durham is a
freelance writer in Dallas, Texas. |
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