Insurance Providers Note Owners Face ‘Hard Market’

Park owners continue to watch the insurance market as rates continue moving up, mainly due to an increase in natural disasters and lawsuits that are paying out larger rewards — something professionals in the insurance world call “social inflation.”

Known as a hard market, many insurance professionals in the outdoor hospitality industry that WOODALLSCM.com (WCM) caught up with noted that the market isn’t showing signs of softening anytime soon.

They noted to WCM that insurance companies have seen higher costs, including higher costs on their insurance (reinsurance), that is then passed down through rate increases to the customer.

“It is still challenging in some markets, especially anywhere with a high brush fire score. California is a big challenge and will continue to be,” noted Chris Hipple, vice president of Leavitt Recreation & Hospitality Insurance. “Other hard markets I have been involved in, including the one after 9/11 and the other in 2008, were caused by the fear of what may happen. Both of those were transitory and were corrected within two years. This one is driven by claims, and it’s not just liability claims, it’s liability and property claims, so it’s a double-edged sword. I don’t feel that this one is going away anytime soon.”

Irene Jones, assistant vice president and program manager for Marshall & Sterling Insurance’s Campground Program, noted that larger lawsuit awards were also a large part of why the hard market may be here to stay for a while.

“Over $2 billion in dog claims were paid out last year, according to the Insurance Journal, and that’s across all industries,” she explained. “There were fewer claims, but the claims that were paid out were larger.

“Investing in lowering your risk profile is the smartest thing you can do,” Jones continued. “That means if you’re building, build wind and fire-resistant and away from a flood zone on your property. It means training your employees and creating a culture of safety. It means having top-notch policies and procedures, because if you don’t have a good risk profile it’s going to be hard to get favorable rates and it’s going to be hard to get rate stability.”

Warren Oliver, senior marketing executive at the Scirocco Group, noted that the insurance market is also contending with a surge of improvements at parks after the COVID-19 pandemic.

“Campgrounds used to bring in a camper, they would make a fire, go hiking, maybe some swimming and then they would leave to visit sites in the area. It was all pretty vanilla,” he said. “But with the pandemic and the increased interest in camping, park owners are now looking at ways to make sure their occupancy rates during the week go up. They are adding more activities like jumping pillows, jumping pads, laser tag, bike rentals, larger aquatic features…etc. All of that stuff can lead to larger claims.

“It is hard to explain to a park owner who hasn’t had any claims that he is going to pay an increased rate because other parks are experiencing these issues,” Oliver added. “If someone hurts themselves doing one of these activities and you have a million-dollar claim, everybody has to bear that, because that is the theory of insurance. A lot of people pay in a small amount of money, so one or two people don’t get hit with catastrophic increases.”

Certain issues in some states are forcing park owners to look at state plans to get coverage in certain areas. California’s FAIR Plan is one example where the state offers coverage for several perils, including fire, smoke, windstorms, hail…etc. But Hipple noted that these plans have to be limited to what they cover because they don’t want to suffer the same losses as a normal insurance company.

“I don’t think that a government agency is well positioned to respond in terms of rate,” he explained. “Meaning they’re going to go out and it’s going to be another big negative on their budget. You look at the National Flood Insurance Program as an example of something that has to be carried by the federal government on an annual basis, otherwise, it wouldn’t exist. The problem is people aren’t buying flood insurance because they think, ‘Oh, it’s never going to happen to me,’ and then it happens to them. The FAIR Plan I don’t believe will ever be competitive in terms of coverage with the marketplace because they’ve got to restrict the coverage that they offer, otherwise, they’re now just the insurance company.

“In Florida, for example, you’ve got Citizens Insurance, which will go in and write coverage on commercial buildings and individual properties in Florida,” Hipple added. “They’re not competing because nobody wants that business. The coverage that they get is not as good as what you get on the open market and it’s that way intentionally.”

Jones noted that sometimes park owners find it best to self-insure.

“If you have a bank loan you have to insure everything, but if you don’t there are ways to insure a lot of the smaller things by making a fund for yourself,” she explained. “Then you just take out insurance on the larger items to keep your costs down.”

Are Insurance Companies Sticking Around?

For the most part, the answer is yes and many of the insurance professionals that WCM spoke with said that park owners shouldn’t be worried about not being able to find companies willing to insure them. While some have exited the space, the replacements seem to be in this business for the long haul.

“Interestingly enough, we’ve picked up two new carriers that are in the market space and that have an appetite for this market and we’ve been writing quite a bit of business with them,” Hipple said. “We have more carriers than we’ve ever had. They will write some stuff in California and some in Texas. We just wrote some in Florida too with them, so it just depends on the individual risk, and it depends on the location specifically and what they’ve got for risk transfer. For example, you live in a box canyon full of trees and you haven’t cleared out any area around you, if it burns, it burns, so don’t expect to get the best coverage.”

Oliver noted that it comes down to an insurance company’s bottom line.

“If they can’t make a profit, then why stay in business?” he asked. “They will stay in business, but they just won’t write coverage for parks. As one company drops out, another one moves in and they hope to reinvent the wheel and then in a couple of years they get hit with the same losses.”

Training/Preventive Maintenance is Key 

Insurance professionals all note that park owners need to be professional about how they operate their parks. Attending online workshops, classes at conferences or finding other ways to show you are learning more about how to take care of your business can help insurance adjusters feel more comfortable working with a particular park.

“One of the biggest things they want to see is someone who has experience and if you don’t, hire someone that does,” noted Jones.

She also highlighted that basic training in best practices, emergency procedures and more need to take place every year.

“I think there are different ways you can do it to make it interesting, but I would emphasize that when you have a group training you want to document who’s there and keep a file of it,” Jones explained. “If you’ve done training on how to safely maintain walkways and you have your five maintenance people there, I would document that they were there so that you’ve given them the proper training to do their job. The same thing if you train them on safe lifting, you document that you’ve done it, have a roster of who attended and put it in their HR file.”

Hipple noted that if you don’t do preventive maintenance, then you are left in an indefensible position.

“When it comes to things like tree maintenance, some parks don’t like to do it because they don’t want to remove the trees, but the reality is, if you are indefensible at some level, you are going to have to pay out should an incident occur,” he said.

The insurance professionals that WCM spoke with said they are encouraged by the recent spate of states that have enacted laws that limit liability exposure for park owners but note that many haven’t worked their way through the court system yet.

“I am very encouraged by the inherent risk laws that are starting to crawl across the nation, and I strongly support them, but it will take time for those to affect our industry,” she noted. “On the claims side, what’s going to happen is once there are claims, then you’ve got to apply that through the lawsuit process and have it tested in the courts. On the other hand, I think it looks fantastic industry-wide for us. To be able to say, this is what we’re doing as an industry, we are state by state passing inherent risk laws around camping, it looks fantastic.”

Covering Your Employees

One of the areas insurance providers have been focused on over the last several years revolves around ensuring park owners have the proper workers’ compensation insurance in place and that they understand who is deemed an employee.

“We’re getting more and more property owners to realize that they need workers’ compensation insurance,” noted Hipple. “Historically, work campers have been erroneously viewed as independent contractors or people have said, ‘Oh, I have a barter agreement, and that’s not subject to blah, blah, blah.’ Everybody can say whatever they want to right up until the point when somebody gets hurt and the government steps in. Because the government will tell you whether or not you’re subject to whatever rules or regulations.

“Now, the change that is coming revolves around the news that the Internal Revenue Service wants to hire 80,000 agents. They’ve been talking about reducing the limit for a 1099 down to $600 and that PayPal, Venmo…etc. are going to have to report these items. They’re trying to recapture lost taxes for people either doing gig economy or they’re doing something like the work camper thing. Workers’ compensation is a side issue. They’re obligated to do federal withholding, they’re obligated to do social security, they’re obligated to do all these things and they’re not doing it.”

Hipple said that park owners should think about what constitutes a person as an employee.

“If you look at the test of what an employee is, it’s generally elements of control,” he explained. “You tell them when to show up, when to leave, you give them the equipment that they’re going to use and you tell them how to do the job. You contrast that with a true independent contractor like my plumber. If I go to my plumber, I pray to God he shows up. He shows up whenever he wants, he leaves whenever he wants, does the job however he wants and bills me. He has an opportunity for profit or loss.

“You contrast that with a work camper doing the same job,” Hipple added. “I tell him, ‘Hey, I want you to fix this sink down in the bathhouse.’ I give them the tools to do it, I give them the materials to get the job done and I tell them how I want it done. Then they go down and do it. They have no chance for profit or loss, they’re just making money. That’s the inherent difference and the government is going to want to capture that money. I expect that a few examples will be made and people are going to panic a little bit. Then all of a sudden, it’s going to be we’re doing business the way that we probably knew we should have been doing it all along.”