Most Insurers Get Cold Feet On Ski Risks Despite legal protections and safety improvements, market remains limited

Despite a record year for headline-grabbing deaths in avalanches, several professionals who pay attention to ski area underwriting say those tragedies will not change the insurance market very much.

The deaths, they say, probably will not involve any sustainable claimand insurers in the business are skilled at anticipating such risk. Not that there are a lot of carriers or that their rates are likely to decrease.

Michael Berry, president of the Denver-based National Ski Areas Association, is quick with a black-humored quip when asked the about the insurance market for his membership. “What marketplace?” he demands. “Oh, you mean our 2.2 providers.”

Rob Andrews, director of Aons ski resort division in Denver, said his brokerage, which writes some business through Liberty Mutual, is trying to change that.

Aon is seeking to expand in a sector that has been dominated for decades by London-based Willis (which works with American International Groups Lexington Insurance) and Acordia in Chicago (which underwrites through Genesis, a division of General Re).

Mr. Andrews, formerly an executive with the Vail Ski Resort in Colorado, said he moved to Aon because he knew that ski area operators had strong, quality risk management, good loss control and a historically great record. Plus, “I thought by adding choices to the market, that would be beneficial to the [ski] industry as a whole.”

Big and small ski resorts, he said, could all benefit from increased selection, and if the insurers could be sold on their track record, “you could bring more carriers to the table.”

“I think thats happening. I think theres more interest in the marketplace,” he added.

Mr. Andrews and others who were interviewed all noted how many areas have expanded and diversified their activities by creating resorts offering leisure pursuits that use the properties 12 months a yearfor trail hiking, water parks, golf and other recreation, in addition to providing hotels, shops and clubs.

Obtaining workers compensation coverage, Mr. Andrews noted, is an area that many have struggled with. But he noted that resort companieswhich, besides liability, also insure for risks such as construction wrap-up and shuttle buses”can bundle and have some clout in the marketplace.”

Brian Derouin, manager of the Acordia Resort and Recreation division, said “a need for expertise” tends to limit the number of players. Underwriting the ski area sector, he said, involves a lot of specialized know-how concerning mechanical aspectssuch as use of lifts and outdoor environments.

He also noted that there has been a drop in the number of potential customers, with ski areas declining to a little under 500 compared to more than 600 in the 1980s.

Besides Willis, Aon and Acordia and their providers, Mr. Derouin said few companies have organized programs and might write only one or two areas connected with hotels. Over the decades, he said, a lot of underwriters have come and gone because “typically they didnt understand the industry.”

David Jordan, senior vice president of Lexington Insurance Company and an AIG division executive, said there are fewer markets now because “face it, this is a tough set of exposures both for casualty as well as property. This is not a market for the faint of heart.”

Rick J. Lindsey is chief executive officer of Chicago-based Prime Insurance Syndicate, one of the smaller carriers for ski areaswriting about $20 million in premium and another $10 million on Lloyds of London paper.

The firm provides coverage for 20-to-30 areas, in some cases letting a bigger underwriter take most of the risk and writing just a portion of the businesssuch as a hill where customers descend by sliding on inner tubes. He calls ski areas “a very complicated risk.”

He said for a tiny ski hill, the minimum premium would start between $10,000 and $25,000 with a $1 million limit, but they have bought as high as $15 million.

Mr. Andrews at Aon offered that smaller areas drawing fewer skiers would pay less than $100,000, with limits of $1-to-$2 million, while the biggest resorts “can see premiums in the seven-figure range with tens of millions in limits on primary and excess general liability.”

Prices, according to Acordias Mr. Derouin, are difficult to generalize since every resort has different deductibles, which can go “as low as a thousand to millions.”

While Mr. Lindsey said he had never seen rates go down, Mr. Derouin said they had basically followed the market cycles of the entire insurance industry.

Mr. Berry said his industry is not seeing much softening in prices, but “there isnt the tension there was 18 months to two years ago,” he added, referring to tougher market conditions in place then.

Prices at some periods in the past prompted the formation of captive insurance arrangements. One that was formed in the 1980s, he said, lasted 15 years but is no longer in business. Currently a few resorts are self-insured, and there is some talk of creating a captive, Mr. Berry related.

Generally resorts are legally protected against most skier death and injury claims because of laws that skiers accept the dangers inherent in the sport. However, Mr. Berry said that court rulings have eroded some protections.

Mr. Jordan at Lexington noted a move in some states to update laws with wording to cover snowboarding and tubing.

Mr. Derouin pointed out that for ski areas, “the cost of defending is expensive even if you win.”

Both Mr. Berry and Mr. Andrews said that there had been no claims or litigation in the late 1990s after the well-publicized deaths of Rep. Sonny Bono, R-Calif., and President Kennedys nephew, Michael Kennedy. Both skied into trees.

This year, deaths on the slope have come from avalanches, with a record seven people dying in Utahincluding a snowboarder who ventured through a gate with skull and crossbones warnings to go outside the boundaries of the Canyons Resort at Park City.

Mr. Derouin said many of the deaths this year were in back-country areas where the U.S. Forest Servicenot the resortsets the procedures. The death near the Canyons could not play well as a claim, according to Mr. Berry, because “that was an out-of-bounds situation.”

Mr. Lindsey, however, said he believed the Canyons incident could have an effect on rates, depending on whether the victims kin file suitand “my guess is they will.” Having a gate that could be opened could pose a problem, he suggested.

Going back to 1995, there have been incidents of skiers killed when lifts failed, but Mr. Jordan at Lexington said that is “ancient history” and ski lifts are now so well engineered that the chance of failure is extremely remote.

Mr. Berry said that the sport has also been made safer by better equipment.

Still, there is no safety for a skier that wants to fly down the hill at 50 miles-per-hour, Mr. Derouin pointed out.

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

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Most Insurers Get Cold Feet On Ski Risks

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