“Insurance companies historically do not increase your annual premium or future annual premium as a result of a catastrophic loss,” Denley says. “They generally increase your premiums because of claim frequency and not severity.”

Mark Mastrov, founder of 24 Hour Fitness, San Ramon, CA, who now heads the private equity firm New Evolution Fitness Co., remembers dealing with insurance companies after three separate instances resulted in heavy damage to his clubs.

The roof of one 24 Hour club caved in over the pool area after drain blockage from heavy rainstorms caused the roof to fail. No one was in the pool at the time, Mastrov says. It took the insurance company more than 12 months to agree to the repairs, Mastrov adds, and the amount the insurance company offered 24 Hour for coverage of the loss of business was much less than the company suffered. After arbitration, it took 24 Hour more than three years to receive payment from the business loss revenue claim.

In another case, after tornados damaged several 24 Hour clubs in Texas, it took more than 60 days for insurance companies to agree to bids for repairs, Mastrov says. In a third case, a fire in a neighboring building spread to a 24 Hour club, causing management to have to shut it down for more than a year, Mastrov says, and once again, the company recovered the business loss revenue after arbitration with the insurance company.

“Generally, in any insurance request, we had tremendous difficulty in getting reimbursed for work done,” Mastrov says. “The insurance companies generally drag their heels and sometimes take years to pay off what we are owed. The damage claims are a bit easier than the business interruption losses [claims].”

Not Time to Trim Costs

Despite some of the difficulties that can occur in dealing with insurance companies, now is not the time to cut back on insurance costs — especially liability insurance — no matter what financial situation a club owner is in during this strained economy, insurance agents say.

“Any club [operator] that would be self-insured for liability would be a complete fool,” Denley says. “The fitness industry is vulnerable to a liability claim every day. You can't go without liability insurance. As far as the property insurance, if they own the building, they usually have a mortgage, so the bank is going to make certain that you have insurance to protect their financial interest.”

Club owners need to understand the value of insurance and how affordable the amount of coverage is for the protection they get in return, Reinig says.

“If an insurance agent is doing their job, they will attempt to make sure that club owner understands that you don't want to cut off your nose to spite your face,” he says. “You don't want to save $400 when it could end up costing you $400,000 in a claims situation.”

Roma doesn't have those worries, thanks to his insurance policy and the agents with whom he worked. Roma's stress level may have been reduced, but the emotional tie to the club that suffered the fire and will eventually be sold is still there, he says.

“I used to ride my bicycle to this building because I don't live that far,” Roma says. “I won't be doing that this summer.”

Tips for Risk Management Services

Mary Wells, area vice president, risk management for Arthur J. Gallagher Risk Management Services Inc., Eden Prairie, MN, offers tips for how insurance agents manage their catastrophic claims with their club owner clients.

Prior to a loss, insurance agents should negotiate a broad policy with their club owners to include:

• An agreement on an independent adjuster

• The loss adjustment expenses to include attorneys in loss preparation and coverage analysis

• The identification of a business interruption expert

• Arrangements for remediation partner(s)

• The establishment of a chain of communication and coordination between all parties

After a loss, the insurance agent should:

• Immediately schedule an on-site meeting with the insurance carrier and the club owner

• Develop a strategy to mitigate and handle the claim in a timely fashion

• Establish an agenda, identify key issues and set the expectations of all parties involved

• Identify the needs for claim team members (such as consultants, independent adjusters and attorneys) and to assemble and manage the experts

• Make sure the claim continues moving forward and time frames are met

On-site:

• Take digital photos of the damages; distribute electronically to all parties

• Assist with coordination of temporary repairs; mitigate the initial damage

• Help get the club owner up and running

• Provide a spreadsheet with the statement of values, copies of policies; clarify how deductibles/self-insured retentions are applied, etc.

On-going:

• Manage the expectations and work as a team towards a fair settlement

• Obtain initial advance and mid-term payments

• Continue to schedule meetings and/or conference calls as needed

• Review documentation submitted for payment

• Assist with rebuttal analysis and counter proposals, seeking win-win compromises

• Monitor reserves for accuracy and appropriate adjustments — avoid surprises

Fitness Club Insurance Carriers

Some of the main insurance carriers that work with the club industry are:

• The Hanover Insurance Group
• Liberty Mutual
• Meadowbrook Insurance Group
• Philadelphia Insurance Companies
• Safeco Insurance
• United National Insurance Company

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