OVERLAND PARK, KS — Many health clubs nationwide are experiencing lower membership numbers and reduced annual revenues because of the slow economy. This has led some club operators to reduce insurance coverage to cut costs.

Club owners shouldn't cut corners when it comes to property insurance coverage, insurance companies say.

Some people may think that the value of real estate has decreased so they can reduce the value of their buildings and save, but Gary Klein, assistant vice president of underwriting for West Bend Mutual Insurance, West Bend, WI, cautions against this.

“There's a difference between market value and replacement cost,” he says. “The cost to replace that same building is pretty much the same today as it was two years ago.”

In fact, he says the cost to replace a building might be even higher today than in the past due to a reduced workforce in the construction market.

Jennifer Urmston Lowe, national account and IHRSA program manager for Sports & Fitness Insurance Corp., Lexington, SC, agrees, saying that in this economy, business owners would have a difficult time rebuilding and/or replacing property in the event of a loss if they decreased the value of their building.

Lowe encourages club owners to keep their property insurance coverage the same or increase it slightly, but she also encourages them to search around for the best base rate and to ask their agents about ways to reduce their premiums.

Insurance rates had been decreasing over the last few years, Klein says. Now, he sees rates stabilizing.

Klein says that the health club industry has suffered less during the recession than some of the other industries for which his company provides coverage, so he hasn't seen a lot of club owners cutting coverage to save money.

However, some operators have had a decrease in revenue and/or membership, and that actually can mean reduced rates. Many general liability and professional liability policies are based either on revenue or on memberships. Reporting decreases in either would help lower premiums, he says.

However, some policies are based on square footage. Club owners with a lot of members in a small amount of space may want to ask for a liability policy based on square footage, says Robert Kuchefski, president of www.insureyourclub.com and senior executive broker for Hoffman Insurance, Wellesley, MA.

Club operators should read the declarations page on their policy to see which way their coverage was determined.

In addition, workman's compensation insurance premiums are based on actual payroll, so if a club owner's payroll is down due to slower business, then the worker comp premiums should decrease as well unless they have experienced significant claims activity, Lowe says.

Club owners also can reduce their insurance rates by increasing their deductible, although Klein says a deductible increase does not reduce rates significantly. When George Gagnon, owner of Greer Athletic Club, Greer, SC, renewed his club's policies last June, he increased the deductible from $500 to $1,000 and reported his drop in monthly membership revenue, which decreased his liability insurance premium by 10 percent to 15 percent.

Gagnon estimates he spends about $6,000 annually on liability and property insurance and a few thousand dollars more on workers compensation for his 12,500-square-foot club. He encourages club operators to stay in touch with their insurance agents to make sure they receive all available discounts and to shop around.

“Insurance is a significant expense,” Gagnon says. “I think that if you don't actively pursue trying to find the best rate for your club, you can easily pay more than you should be.”

To save money without sacrificing coverage, club owners can protect themselves against potential accidents and claims through risk management, says Lin Conrad, executive director of California Clubs of Distinction, an El Sobrante, CA-based trade association for 180 California health clubs.

Jim Foley, insurance agent and vice president with InterWest Insurance Services, Chico, CA, agrees that club owners need to have well-thought-out risk management programs. He advises club owners to cut insurance costs by complying with laws and regulations, having well-written waivers and keeping on top of claims.

In addition, Foley advises operators to work with insurance companies that are familiar with the fitness industry and are knowledgeable about the activities and amenities of their particular facility.

Many club owners may carry a lot of coverage that they think they may not need, Foley says, but facilities need broad coverage.

“They may not feel they need it until something bad happens, and it's hard to know where the bullet may be coming from,” Foley says.