Purchasing insurance coverage for a health club, as many of you know, is not the easiest or most pleasant task an owner faces today. Deciding what type of insurance protection you need is only part of the exercise. Finding a reputable broker who can place your protection with a solid insurance company at a reasonable premium is also difficult, especially in today’s insurance environment. Keep in mind local agents who do not specialize in the health club market may have difficulty securing insurance coverage on your behalf. So, just because your brother-in-law does your auto insurance, it is not always a good idea to have him insure your health club operation. There are many national brokers who specialize in the health club industry (like me!) that have more industry-specific knowledge that guides the coverage selection planning and process in a than an agent who specializes in an unrelated field that .
The process of “shopping” for insurance, although somewhat time consuming, proves to be worth the effort. Insurance underwriters require more information than they did a few years ago and it is nearly impossible to obtain a quote without providing the prospective insurance company verification of your claims history. Most insurance companies require a minimum of three years “loss runs” from the prior insurance carrier even if you have never had a claim. In addition to completing an application (usually one for each company you are shopping with), the underwriters are also likely to request a copy of your waiver form, membership agreement, club brochure and schedule of classes. The bottom line is this: providing detailed information about your business along with good claims experience is likely to produce a good insurance product at a competitive price. Helpful hint- insurance company underwriters LOVE detail.
I have outlined some of the basic insurance issues you will be discussing with your broker below.
Check Your Gym’s Lease for Insurance Requirements
You MUST check your lease for insurance requirements. The industry standard for commercial general liability limits are $1,000,000 per occurrence with a $3,000,000 policy aggregate (the total limit of all liability claims). Some landlords may require higher limits which can add substantial premium cost to your insurance portfolio. Also, if you feel that the industry standard will leave you awake at nights wondering if it is enough coverage, ask your broker to quote an umbrella or “excess” policy to add additional limits.
Property Insurance and Significant Areas of Coverage
When considering Property Insurance for your Health Club, you will need to address these basic areas of coverage.
- Contents: The replacement value of all your fitness equipment, inventory, computers, phone systems, and furniture. Do not make the mistake of choosing a low limit to save on premium costs. Property insurance is relatively cheap. A typical club will pay approximately $300 a year for every $100,000 of protection. There is nothing worse than finding out you are underinsured AFTER the fire.
- Tenant Improvements: Whether or not you or your landlord paid for your “build-out” costs, your lease will probably require that you are responsible for all “interior improvements” in the event of a fire or any other property loss. Therefore, you will need to estimate this cost and add this additional coverage to your application. Even a simple build out can cost $30 a square foot.
- Loss of Business Income: This is an amount of protection that will replace your income in the event your club would have to close due to a covered property loss (fire, tornado, roof collapse, etc). We recommend that you try to protect at least 4 months of revenue. However, only you can determine how much coverage, if any, you want to purchase to replace your income if you are shut down as a result of a major catastrophe.
- Building Coverage: Just like your contents protection, if it is your responsibility to insure your building, you need to determine the replacement value to rebuild from the ground up. This figure can vary depending on the type of construction and the area of the country you are located. It is often helpful to consult a local contractor or your insurance broker to determine the proper limit.
Workers Compensation and State Requirements
Most states REQUIRE that you purchase workers compensation insurance to protect your employees in the event that they are injured. Please keep in mind Independent Contractors are likely to be considered “employees” by the State Workers Compensation Insurance Board and, therefore, are also entitled to workers compensation benefits. You will need to check with your State’s workers comp division for clarification on the independent contractor issue.
Bonding- What It Is and if Your Club Needs It
Many states now require health clubs to be bonded if they collect any payments prior to service or if a member is required to sign a long-term contract. The rules vary by state and it will be up to you to contact your state’s Department of Consumer Affairs to determine whether or not you need to comply. A bond is NOT an insurance policy. It is a financial guarantee instrument and is underwritten in much the same way as a bank loan.
Employment Practices Liability Insurance
Most club owners elect not to carry this type of insurance but it is important for you to be aware that claims brought against you by an employee for sexual harassment, discrimination, or wrongful termination are NOT covered under your general liability policy.
This is another business liability coverage not available under the General Liability policy. Cyber Insurance is designed to help your business recover after your business has become victim to a cyber attack or data breach.
Sexual Abuse and Molestation Insurance
This coverage is often, but not always, included within the General Liability policy but is usually written with lower limits of coverage. Given catastrophic nature of this type of claim both monetarily AND to the reputation of the club, be sure to ask your agent about this coverage. If possible, increase the limit of coverage to $1,000,000.
To summarize, take a few hours to review your insurance portfolio. It is always a good idea to also update your waivers and your safety procedures. For many club owners, their health club is their entire life- both fiscally and emotionally. It is worth the effort to try and protect that asset and hopefully save a little money on insurance costs.
If you would like free samples of updated risk management materials (ie; waivers, club policies & guidelines, special event waiver, etc) please contact us.