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Insurance for the Unexpected

Sometimes, no matter how great the coverage is, insurance isn't enough to pull a fitness facility through hard times.

Insurance coverage is often seen as a safety net. One insurance company even uses an umbrella as its logo, to encourage the idea of protection and care. And, in a perfect world, every fitness center's insurance coverage would be more than sufficient to handle every unfortunate event and natural disaster. One call to their friendly insurance agent and the crisis is over. Right?

But, no one ever said the world was perfect. Sometimes, no matter how great the coverage is, insurance isn't enough to pull a fitness facility through hard times. Some events are so enormous, so disastrous, that no amount of coverage can salvage the facility. Other events are so unlikely that specific coverage was never considered in the first place.

Here's a more realistic concept of insurance coverage: a necessary precaution against foreseeable events. As for the rest of it? You'll cross that bridge when you come to it. There are, after all, only so many things you - or your insurance company - can prepare for.

Flirting with formulas

There are formulas insurance companies use to identify the likelihood of a disaster, and, most of the time, they're right on target. But the fact is, these formulas are conjecture, at best, and make assumptions based on past events. For example, if your town has never been attacked by terrorists, battered by floodwaters or shut down after a bomb threat, insurance companies assume it won't be subject to those events in the future. Psychics aren't on the payroll, but insurance companies and fitness facilities are nonetheless forced to predict the future when deciding on coverage. And sometimes, they're wrong.

When no coverage is enough

Even businesses sunk deep into the bedrock of a particular community are not immune to the unpredictable nature of disaster. The Downtown Athletic Club was located in a 35-story building at 19 West Street in Lower Manhattan, New York, N.Y. It was founded in 1926, and moved to this site, next to the Hudson River, soon after. The fitness center had everything: a swimming pool, fitness center, miniature golf course, squash and tennis courts. It was most famous for hosting the Heisman Trophy award ceremony, presented every year to the most outstanding college football player and named after John Heisman, the fitness center's first athletic director.

The Downtown Athletic Club no longer exists. It closed in 2002 after suffering damage and financial difficulties following the events of Sep. 11, 2001. The 35-story building is now a residential tower named The Downtown Club. The fitness center's demise begs an uncomfortable question: If a nationally known landmark doesn't have sufficient insurance coverage to survive a disaster, what would happen to your facility if a similar event occurred in your town?

Cross Gates Athletic Club

Cross Gates Athletic Club, Slidell, La., found out what could happen in a disaster in 2005, when the privately owned fitness center's two locations were battered by Hurricane Katrina. Slidell is located about 30 miles northeast of New Orleans, on the northshore of Lake Pontchartrain. "One of our clubs is an 80,000-square-foot multi-purpose facility located on 10 acres," says Dion Grossnickle, general manager. "The other was a 24,000-square-foot fitness-only facility. ... Our larger club sustained about $600,000 worth of damage, caused mostly by wind. ... Our smaller club was a complete loss, due to 5 feet of water caused by [the] storm surge," says Grossnickle. "Nothing was salvageable from that club."

After the hurricane, the facility's staff and membership were reeling from the devastation. But the biggest shock came when Cross Gates Athletic Club contacted its insurance company for assistance. Management assumed that the fitness centers had sufficient insurance to cover flood damage. Unfortunately, they did not. "Our small club did not have flood insurance," says Grossnickle. "Therefore, it was a total loss."

The idea that Cross Gates' problems would have been lessened if they had ponied up for flood insurance is, quite frankly, absurd. It's akin to chastising a New England facility for not having earthquake insurance. According to Rachel Abercrombie, a CAS associate professor of earth sciences, there is a 19- to 28-percent likelihood that an earthquake will occur in New England by 2013, and a 41- to 56-percent likelihood by 2043. Consider, for a moment, how many of those fitness facilities have purchased earthquake insurance. Cross Gates Athletic Club was in a similar situation. "Both of our clubs are located out of flood zones," says Grossnickle. "Like many residents of Slidell, we could have never imagined that the entire city could be under water. Unlike New Orleans, Slidell is above sea level."

Curves For Women

On Oct. 10, 2007, a man robbed and threatened to blow up the Sovereign Bank in Jersey Shore, Pa. He left a suspicious bag just outside a rear entrance to the bank, and police shut down a section of Jersey Shore for much of the afternoon. Businesses and residences were evacuated. One of those businesses was a Curves for Women facility managed by Wendy Cooper. "A few blocks surrounding the area of the bank were blocked off, including the parking lot to our Curves, and traffic was rerouted," she says. "People were asked to stay indoors or leave the area."

In response to the emergency, the Curves facility closed its doors. "The gym was locked and staff remained inside," says Cooper. "A few members were inconvenienced by the lockdown." Cooper says the loss of revenue wasn't significant, and the facility was able to rebound quickly. However, a bomb scare was certainly unforeseeable, and not all insurance policies may cover these kinds of emergencies. In many cases, the very best insurance is a sizeable amount of money squirrelled away to buffer the loss of business incurred by these events.

When you recover and rebuild

Cross Gates Athletic Club suffered lasting effects from Hurricane Katrina's wrath. "For the first three months following the storm, we were greatly affected by the loss of memberships. Many of our members lost their homes, which, in return, caused them to either cancel or put their memberships on hold due to relocation or [the] rebuilding of their homes," says Grossnickle. Cross Gates Athletic Club was prepared to wait it out, with hopes that membership would rebuild along with the city. The hunch paid off. "[Later,] the Slidell area's demographics were greatly affected by many people moving back to the area, as well as new residents moving into the area, as their homes in the New Orleans area [were] in disrepair. Our population seemed to double within a very short time. Great news for us! In 2006, our larger club had its best year due to the growth in membership. Our smaller club was and is a different story."

Lack of flood insurance coverage sunk the smaller club into a hole it has been struggling to climb out of since 2005. "About nine months after the storm, we relocated into a 6,500-square-foot temporary location near our lost club," Grossnickle says. "Our hopes were that we would only be in this location for six to eight months. Now, two years after the storm, we are still in that location, awaiting the rebuilding of our original 24,000-square-foot club that was located in a shopping center. ... Our hopes now are to be back into a new club by the end of April 2008."

A new world

When an unpredicted disaster devastates an area, there may be crippling long-term consequences for fitness centers that find a way to continue operations. "The largest effect, post-Katrina, is the expense to run a business," says Grossnickle. "Our insurance premiums have gone from under $20,000 a year to about $80,000 a year. Our payroll has also increased by nearly 20 percent. And, with new owners of the building we are leasing comes a higher cost of rent - which is nearly double."

Cross Gates Athletic Club had emergency procedures in place before Hurricane Katrina hit, and the facility's first concern was safety, not insurance. "Prior to Hurricane Katrina, our main goals were to be certain that our team members and members were safe," says Grossnickle. "We prepared by having a communication plan in place. But, as the storm passed, it was very hard to communicate, as phone service and electric were out in our area for nearly three weeks. It was even difficult for cell phones to work."

Now that the fitness facility has come out the other side of a natural disaster, some changes have been made to its emergency procedures. The inability to communicate via telephone has been addressed by focusing on the Internet. Cross Gates Athletic Club now has "a blog set up through our website [where] our team members, as well as members, can get updates on the club and the Slidell area. We now also have an updated database of our 200 team members' phone numbers and email addresses to keep them up to date on the company." It's hardly the equivalent of surrounding the facility with a 40-foot-tall flood wall, but Cross Gates is doing what it can. "There is not much more we can do to combat mother nature," Grossnickle admits.

Prepare for the worst

Life is unpredictable, and even the most conscientious facility owner can't prepare for everything. Realistically, there is no possible way any fitness facility could have adequately prepared for - or predicted - the terrorist attacks that leveled the Twin Towers and surrounding area. It was, in effect, an act of war, and purchasing insurance coverage to prevent ruin from enemy attacks is an impractical way to run a business. However, fitness facilities should still be prepared for the worst (while hoping for the best), no matter where they are located. "Have a plan to communicate to not only your staff, but to your members, as well. And, on top of that plan, have a back-up plan just in case. Get email addresses for all members. This is the best way to communicate with them and to keep them up to date on the club," says Grossnickle. "Inspect your insurance policies and understand them. If you don't understand them, talk to someone who can explain them to you."

1. B.U. Bridge., Accessed Nov. 8, 2007.
2. Wikipedia., Accessed Nov. 6, 2007.
3. WNEP Newswatch 16., Accessed Nov. 6, 2007.

Purchasing Guide

Andrea Pugliese Insurance Services 800 664-5489; Andrea Pugliese Insurance Services is a full-service agency that specializes in meeting the insurance needs of the health club industry. It has provided facility owners with coverage since 1984. The agency offers its years of experience and knowledge with a personal touch.

Association Insurance Group 800 985-2021; Association Insurance Group has provided insurance and risk-management products for the health club industry since 1995. Its staff members are known for their customer service and educational support for thousands of health club owners nationwide. President Ken Reinig is a nationally known speaker and recognized as an authority on litigation prevention in the industry. He has written numerous articles for various industry trade magazines, but most people know him as the "singing insurance guy."

Fitness and Wellness Insurance Agency 800 395-8075; Fitness and Wellness is an insurance program manager for the fitness industry, with 20 years of experience insuring businesses for property, general and professional liability, workers' compensation, bonds and other ancillary insurance products. Eligibility for our program includes fitness centers, yoga studios, tennis clubs, spas, dance studios and martial arts centers.

Fitness Pak 800 873-3725, ext. 3187; Fitness Pak provides Insurance solutions to health clubs in the U.S. It offers a full range of insurance products, including property/liability, ACE personal trainers liability, workers comp, auto and employment practices liability. Fitness Pak has been in business since since 1984 and is a division of InterWest Insurance Services Inc.

K&K Insurance Group Inc. 866 554-4636; K&K Insurance Group Inc. provides a wide array of products to all segments of the health club industry. K&K's standard insurance program provides coverages for full-service health clubs, and it also has a program designed specifically for smaller clubs and circuit training studios that offers premises and operations liability for facilities with annual receipts that are less than $500,000. An additional program has been designed specifically for circuit training studios with less than 3,000 square feet of leased or owned space.

Markel Insurance Company 800 900-1155; Insurance programs for facility owners or independent instructors are available from Markel Insurance Company. It offers property and liability insurance for athletic clubs, fitness centers, racquet clubs, swim clubs, and yoga and Pilates studios. It also offers general liability insurance for independent instructors, personal trainers and yoga/Pilates instructors.

National Health Club Association 800 765-6422; The National Health Club Association (NHCA) has served as fitness industry insurance specialists since 1990. It specializes in women-only, men-only and coed circuit facilities. From A-rated or better insurance carriers, NHCA offers commercial general liability, commercial property and surety bonds. It also provides professional liability insurance for certified fitness instructors, and offers a Fitness Professional Trainer Certification program.

Sports & Fitness Insurance Corp. 800 844-0536; Founded in 1985, Sports and Fitness Insurance Corp. is a customer-focused program administrator that focuses solely on the fitness industry. Its staff has more than 35 years of combined experience in the fitness industry - from serving on President Bush's Fitness Council to owning and operating fitness centers and serving in management with equipment manufacturers. Its underwriting staff has more than 100 years of underwriting experience, mostly within the fitness industry. It is licensed in all 50 states, and endorsed by numerous organizations, such as the International Health, Racquet and Sportsclub Association, and Curves For Women.

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