By: Ruthie Rivers, Granite Insurance
When you don’t understand how your insurance program works, the thing anyone falls back on is “how much can you save me?” While cost is absolutely a key factor in purchasing your insurance program, there’s so much more to it than just that. We’ll take a bit of time here to discuss the different types of insurance policies that may make up an adventure operator’s program and will provide a brief overview of how they all work. This will give you better questions to ask your agent and will give you the ability to make informed business decisions for your operation. As an agent, education is part of our job! Any agent in the industry can promise you the cheapest policy, but to get that price cheaper and cheaper, there are important coverages being carved away from your program. When “it” really hits the fan, will your policy have you covered?
Before we jump in the deep end, let’s make sure we’re all speaking the same language:
Premium - When we’re talking premium, it’s typically expressed on an annual basis.
Deductible – How much you are paying for a claim or occurrence before your insurance kicks in to cover you. For example, let’s say you have a claim for $10,000. If you have a $1k deductible, you pay the first $1k, and the insurance company pays the remaining $9k.
Rating Basis – This is the main factor the carrier uses to calculate your annual premium, and it varies by policy type. For one policy it might be your gross annual sales; for another, it might be your annual payroll.
Agent/Broker – Your Agent represents you in conversation with carriers, matches you with the Carrier that is the best fit for your business, and directs the Carrier on the content and management of your policy.
Carrier/Insurance Company - The Carrier is the one actually writing your policy, saying what risks they can/can’t accept, and determining your premiums.
Your General Liability policy is intended to cover your liability to others for bodily injury or property damage. An example would be if someone trips on something walking into your office and breaks a wrist and sues you. Or when you’re on the river and a participant gets clocked with a t-grip, resulting in a hospital visit for stitches, then a lawsuit follows.
Typically, the main rating basis for your General Liability policy is your gross annual sales. But ALL of your annual sales shouldn’t be pooled into just one category. One easy example is your retail sales – if you sell $900k/year in river trip experiences and $100k/year in retail sales, those should be broken up in your gross annual sales reporting. The revenue generated from river trips represents a higher level of risk than the revenue generated from t-shirt sales, and so for the retail side of it the carrier won’t charge as high of a rate when calculating your premium. Here are some other ways you can manage your General Liability premiums:
Can you accept a deductible? If you accept a deductible on your policy, that means that you are accepting a portion of the risk. If you have a $5k deductible then the insurance carrier is off the hook for payments on any claim under $5k, and will reduce your annual premium.
How do you manage your operational risk? – Do you have well-thought out and written down operations procedures? When a carrier sees that you have put a lot of thought and effort into your risk management plan, they anticipate needing to pay out less in claims. They will also take a look at your experience in the industry when determining your rate and will stalk your business’ website and social media to look for hints of any mismanaged activities.
What does your claims history look like? – Your claims history is indicative of your future claims performance, so the carrier will want to see that information when determining their rate. How much it will impact your rate depends on the amount of the claim. For example, a $5k claim when paying $100k in annual premiums likely won’t have a major impact. But if you have a $250k claim when paying $100k in annual premiums, that will have an impact on your future premiums.
What sub-coverages do you have on your policy? - There are countless sub-coverages that can be added or removed from your policy to affect premium as well. A couple examples are Sexual Abuse & Molestation (for abuse involving a customer) or Blanket Additional Insured (if you issue a lot of Certificates of Insurance annually).
Other ways of lowering your premium are not so advisable and are sometimes included in an insurance contract without the operator’s awareness. To get premiums lower, agents and carriers might exclude some of your operations or activities, or they might only cover your operations at a specific location. Being aware of and understanding the exclusions on your policy is one of the most important things you can do to protect yourself.
Your typical General Liability limits are expressed as $1 million “per occurrence” and either $2 million or $3 million “general aggregate”. Your general aggregate limit is the most the carrier will pay out on your behalf in a policy period. The per occurrence limit is the most the carrier will pay out on your behalf for a single occurrence. A single occurrence could be just one injured participant’s claim, or a single occurrence (such as a raft flipping and 5 participants thrown against a rock and injured) could result in multiple claims against you. In that sort of scenario, if each of the 5 participants in one occurrence sues you for $250k, you could be in a situation where the lawsuits are exceeding your $1m per occurrence limit and you may be forced to pay the rest out of pocket.
The type of situation outlined above is exactly why Umbrella and Excess policies exist. An Umbrella and Excess policy are very similar in nature, so for the sake of simplicity today we will treat them as synonymous. These policy types are intended to provide you with additional limits in case you exceed your underlying limits. If you have a $1m Umbrella or Excess policy sitting on top of your ($1m per occurrence and $2m general aggregate) General Liability policy, that now ups your total limits to $2m per occurrence and $3m general aggregate. This is a good way to protect yourself from bigger claims or lots of smaller claims.
If you have a commercial auto policy and do a lot of participant transportation, it’s important to make sure your Umbrella or Excess policy also sits over your auto policy. Your auto policy will usually have $1m liability limits. If your driver were to overturn a bus full of participants resulting in many injuries/lawsuits, that $1m limit will be very quickly exceeded.
Your Property policy is intended to cover your owned buildings and the contents inside of your buildings or that stay on your property. To construct your property policy, you put together an estimate of the value of that property to determine your policy’s limits of coverage. If you have a $1m building and $500k of business personal property, you have a Total Insurable Value (“TIV”) of $1.5m and that should match your property policy limits.
Typically, the main rating basis for your property policy is the Total Insurable Value. Ways that your property premium might fluctuate include:
What hazards you are insuring your property from? Some things that are not usually covered include Flood and Earthquake (these would require a separate type of policy to insure your property against). In western states with extra snowy winters, carriers may exclude roof collapse due to the weight of snow. Also, items on a property policy are typically not covered once they leave your property.
Can you accept a deductible? - As mentioned in the General Liability section, accepting a deductible is a no-brainer way to manage your annual premium costs.
What does your claims history look like? – If you have a recent history of property claims, your future premiums will be higher.
Where is your property located? – Are you in a high risk of wildfire zone? Are you in a flood zone? If so, property insurance will be more costly than if you were in a non-wildfire zone.
What is your building made of? – Is it wood frame, which if caught on fire would go up in flames quickly? Or is constructed of fire-resistant materials like steel or cement block?
How do you protect your property? – Do you have a sprinkler system throughout your building? Do you have a burglar alarm? These protections will help bring your property premium down.
Business Income & Extra Expense coverage, if you choose to add it, is a part of your property coverage. This coverage would help you cover your ongoing expenses (payroll of key employees, mortgage, ongoing bills, storage rental fees, etc.) in the event that property damage occurs and you are unable to operate or need to modify operations. If you opt in to this coverage, it will result in a higher property premium.
Above, I mentioned that your property policy does not cover items while they are away from your property. If you have high-value items you also want to insure while away from your property, covering them on your Inland Marine policy is the way to go.
Other items that you might see on an Inland Marine policy are ropes courses or zip lines. Even though they are permanent structures and don’t travel off property, many carriers will not cover these types of structures on a standard property policy so the Inland Marine policy ends up being the catch-all for more unique and odd structures.
One covered item does not need to be covered on both your property policy and your inland marine policy. It’s more of an either/or situation. Because of this, it can be important to use one agent to coordinate both your Property to Inland Marine coverages to make sure you aren’t doubling up and overpaying on coverages, or leaving an unintentional gap and forgetting to cover something altogether.
Otherwise, your Inland Marine policy is very similar to your Property Policy. The rating basis is your Total Insurable Value, and premium controls can include a deductible, what hazards you are insuring the property from, and what kind of security measures you take to protect the items.
You Commercial Auto policy’s main types of coverages include liability (your liability to others for property damage or injury) and comprehensive or collision (property coverage for your own vehicles). The rating basis is often your number of vehicles for the liability side, and the Total Insurance Value for the comprehensive/collision side of your coverage.
Ways that your premium might fluctuate include:
Can you accept a deductible? - If so, it’ll lower your premium.
What type of coverage do you want for you vehicles? – If you have older vehicles, or if your vehicles don’t have a high value, you may choose to only cover them with Liability insurance and skip the Comprehensive and Collision coverage. You can choose to customize your policy per vehicle, so you may have only liability on most vehicles and then you may have another vehicle with the whole shebang of coverage.
Are you driving the vehicles seasonally? – If you are a seasonal business, and don’t drive your vehicles in the winter, you can adjust your policy to reflect that in the premium. Depending on the carrier, this can be achieved in different ways.
How do you manage your risk on the road? – Do you have satisfactory employee motor vehicle records? What’s your minimum driver age? Have you outlined a driver training program and do you maintain check-off records? Do you have a vehicle inspection checklist? Having these protocols in place will lower your premium because the carrier views you as less of a risk.
Worker’s Comp is intended to cover employee injuries and lost wage time for employee injuries that occur during the course of employment. An example is if a raft guide breaks a wrist while unloading rafts from the bus and can’t guide for the rest of the season. In this scenario, their medical bills would get paid, and then the guide might also get paid indemnity for the lost wage time and inability to work. Depending on the state you live in, the biggest premium control you have is your Experience Mod. Our article from 2020 covers this in-depth.
The rating basis for Worker’s Comp is your annual payroll. Most of your payroll will fall under one category (Code 9180 “Amusement”) but there are a few exceptions to that rule where you may be able to categorize a portion of your payroll to a separate, and lower-rated, category. This is something you should discuss with your agent.
This article is not a comprehensive list of coverages your operation should have in place. It’s important for your insurance program to be tailored to your operation and there are countless other types of policies that may be necessary to fit your needs. Here are a few other examples you may see pop up:
Liquor Liability – do you sell any alcohol in your operations? If so, liquor liability is needed, and the rating basis is your gross receipts from alcohol sales.
Employment Practices Liability Insurance (“EPLI”) – This coverage exists to protect you from lawsuits involving mismanagement of your employees or potential employees. It kicks in for claims of wrongful termination, discrimination, or sexual abuse between two employees. (Quick note: the “Sexual Abuse and Molestation” coverage we discussed in the General Liability section will not cover allegations of abuse between a manager and an employee, or between an employee and another employee. It will only cover abuse involving a participant.) The rating basis for this coverage is your number of employees.
Participant Accident – This is “good will” coverage for minor accidents your participants suffer. It allows you to choose to cover an injured participant’s medical bills, and when employed correctly it can often help keep accidents from escalating to bigger General Liability claims. The rating basis for this coverage is your number of annual participants.
About the Author
Ruthie Rivers is an Adventure and Entertainment Risk Consultant on the Granite Insurance team. She has a niche focus in the river operator industry but works with all adventure and entertainment operators that fit Granite Insurance’s programs. In her previous life, Ruthie herself was an operator in the outdoor adventure world, which gives her understanding and insight into running an operation and into employing risk mitigation strategies. Her passion is to educate and support her client partners, as is the mission of the entire Granite Insurance team. Granite Insurance serves 250 Adventure and Entertainment clients across the nation and offers all insurance lines pertinent to the adventure industries we serve, including General Liability, Property, Inland Marine, Commercial Auto, Participant Accident, and Worker’s Compensation among others.
Ruthie can be reached by email at firstname.lastname@example.org.