Risks Build As Health Club Sector BoomsEvolution from muscle clubs to family-centers create newexposures

The next time you see some Wall Street master of the universeclosing a huge merger deal on his cell phone while working out onthe treadmill, be aware youre witnessing a health club underwritersworst nightmare.

Americas fitness craze just keeps getting crazier, with thehealth club industry sporting 14 percent growth last year,according to the International Health Racquet and SportsclubAssociation in Boston, Mass.

Meanwhile, the challenges of underwriting insurance coveragealso keep growing as these facilities take on new roles as socialcenters of the community.

Dave Palmer, Denver-based broker for Burns & Wilcox,headquartered in Farmington Hills, Mich., said half-jokingly thathe could put most health club claims under the category of“stupidity.”

“I dont think there is any doubt that the vast majority ofhealth club claims emanate from the use of treadmills,” he said.“If somebody falls off the treadmill, it is usually not in one ofthe at-fault areas, but you see it all the time. Someone iswatching TV, or even talking on the cell phone, for Gods sake, andthey take a spill.”

Mr. Palmer said that some of these claims may be paid, even ifthey are not worthy, to avoid the legal hassle, while other suchincidents never get to the claim stage from the health club. Thetreadmill manufacturer could also be liable, he noted.

Mark Beck, vice president for Fort Wayne, Indiana-based K&KInsurance Services, said treadmills and climbers can cause injuryat times when the previous user failed to turn off the machineproperly so it would start at the first stages of programming.

“Most manufacturers are working toward these types of unitsresetting themselves back to the beginning to prevent anunsuspecting member or guest becoming injured when they jump on theequipment and find that the unit starts beyond their capability,”he said.

Mr. Palmer at Burns & Wilcox chooses to work with oneindependent retail agent and one non-admitted rated carrier, whichhe declined to name. “We have agreed to parameters to what we willnot do in providing coverage to health clubs and what kind ofhealth clubs we will not cover,” he said of his two partners.

At K&K, Mr. Beck said his firm primarily writes on paperfrom one admitted carrier for its health club accounts. “We are nota wholesale or brokerage insurance provider, who may accessdifferent markets and compare,” he said, declining to identify thecarrier that K&K works with.

As more and more health clubs evolve from the limited “muscleclub” environment to the more family-friendly atmosphere with poolsand childcare services, new underwriting concerns arise. “These arethe kinds of facilities that these clubs have to offer, whetherthey want to or not, to broaden their spectrum of service,” hesaid.

Rock walls remain a source of concern to Mr. Palmer, as theyfall outside his range of standard covers. “It does not mean Icould not get it placed elsewhere, but it would just not be withthe advantageous terms I can offer from a nationwide program,” hesaid.

In addition, so-called “key clubs,” where patrons exercisewithout on-site supervision, will also not be covered under astandard program.

Ron Hernbroth, vice president of Tanner Insurance Services,located in the San Francisco Bay Area, said the market for insuringhealth clubs is very limited, with unique programs required. “Youreally have to develop a program designed for health cluboperations,” he said. “A standard policy will not fit because ofthe unique exposures.”

Mr. Hernbroth said he has seen more childcare claims of lateinvolving some form of sexual molestation, “and it is notnecessarily between staff and patrons, but between two youngsters,”he noted. “The allegation is that you failed to supervise manytimes, not that you were the culprit yourself.”

As clubs take on a more social role in the community, Mr.Hernbroth warned, new liabilities arise. “For example, it is a verypopular for high schools in this area to contract with health clubsto have graduation parties,” he said.

Liquor liability is becoming an increasingly importantcomponent, as some clubs now serve beer and wine to give theirhealth enthusiasts a chance to stray just a bit after a workout.“Is it worth paying more for insurance? The vast majority, whenthey sell beer and wine, will pay more in liquor liability than inreceipts,” he said.

As for market conditions, Mr. Palmer said he does see asoftening in prices that is occurring in the general commercialmarket. “I would say overall that the health club industry hasenjoyed better pricing because of more focused people in that arenawho can help clubs reduce risk,” he said.

A good combined ratio for the industry with generally favorableexperience, with some bad pockets, makes for a profitable p-c line,Mr. Palmer said.

Mr. Beck said that health club pricing trends generally followthose of the general market. But in spite of the relatively smallmarket, he also noted that over the past 14 years, “the insurancemarketplace has changed, with many carriers coming and going in andout of the program business.”

While the insurance market remains confined, the number ofhealth clubs and membership figures just keeps going up. IHRSAfigures show that as of January of this year there were 26,830facilities in this country, including commercial health clubs, gymsand fitness centers. As of January 2004, the clubs earned $14.1billion in revenues for the previous year.

Two of the fastest growing membership segments represent theunder-18 and over-55 groupsaccounting for 11.4 percent and 17.4percent of health club membership, respectively, according toIHRSA/American Sports Data Health Club Trend Report.

Slips and falls in wet areas constitute the second greatestsource of claims, behind treadmill accidents. “Sometimes it is noteasy to determine if the club is negligent, but often it is justeasier to pay the medical claim,” Mr. Palmer said.

A potential clients loss experience will usually tell the taleof their commitment to loss control. “Those clubs that haveemployees involved in their clubs risk management programs anddevelop incentive programs for their staff to focus on safetyconcerns at their premises do the best job without having to hireor contract outside services to help them manage their facilities,”K&K's Mr. Beck said.

The most significant loss control measure by far remains thewaiver members must sign before using the facility. “We provide awaiver form for our clients, but how the laws are interpreted ineach state will determine their usefulness. That being said, anyhealth club that does not have a waiver signed is nuts,” hesaid.

Having been in the business of health club underwriting for overa decade, Mr. Beck has seen some changes along with many constants.“Insurance buyers are more savvy than they used to be. Thoseinsureds that have had problems with coverages or losses require abit of attention from their agents or brokers to keep their costscontrolled or down,” he said.

The advent of many chains taking the place of “mom and pop”facilities has not necessarily led to more professional riskmanagement practices. “The faster-growing chains sometimessacrifice risk management during their growth periods, which willin turn require a higher degree of monitoring from their insurancecarriers,” according to Mr. Beck.

Reproduced from National Underwriter Edition, March 17, 2005.Copyright 2005 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.