In a nutshell, insurance is all about sharing the risks the risk of fire, flood, theft, damage, death, injury, litigation, creditors, acts of man, acts of God, and loss. If a risk to your person or property exists, you can buy insurance to cover it.
Famous actresses have insured their best features. Paranoid X-Files nuts have insured themselves against UFO abductions. Couples have insured their weddings against injuries and illnesses, lost rings, weather disruptions, and more. Numerous people are discovering the benefits of getting health insurance for their pets.
Drawing from massive pools of capital, the worlds insurance companies blanket everything of value, sharing the risks that individuals, families, governments and companies cant afford to take.
During the famous Quebec ice storm of 1998, more than 700,000 claims were filed for a total of $1.14 billion in payouts. Without insurance, thousands of families would have had to pay for damage to their homes and cars out of their own pockets. Without insurance, hundreds of people and businesses would have been ruined.
Insurance pools the resources of the many to pay for the misfortunes of the few.
Now, with misfortunes piling up, the insurance industry is reeling. A number of dire financial setbacks have forced insurers to raise premiums, and to become more selective in the risks they are willing to take.
The financial setbacks came on a number of fronts, and seemingly all at once.
For example, the 1990s and the early years of this decade have seen an increase in the frequency and scope of natural disasters. Floods, hurricanes, forest fires and other natural phenomena have been more common and more devastating than in the past, resulting in more payouts by insurance companies. Companies on the east coast of the U.S. wouldnt offer Hurricane Insurance at all if they werent legally obligated to provide it.
In February of 2001, the United Nations Environment Programme estimated that the global costs of natural disasters that can be related to climate change will hit $300 billion US a year over the next decade. Thats why insurance companies and associations were among the worlds biggest supporters of the Kyoto Protocol on climate change.
Insurance companies also point to the terrorist attacks of Sept. 11, 2001 as having a significant impact on the industry not just in terms of honouring $40 billion US in claims filed as a result of the attacks, but also as part of the economic downturn that resulted from the attacks, severely impacting the tourism and air travel industries. The $40 billion in payouts was double the impact of Hurricane Andrew, which resulted in claims for $20 billion.
Forty billion dollars set the insurance industry back to five years in terms of its capacity to cover claims, according to a report on insurance by the Iowa State University College of Business.
Another significant disaster after 9/11 could have emptied the insurance industrys pool of available funds, forcing companies to liquidate stocks, bonds, assets, and other investments to cover claims.
But while the terrorist attacks had a real impact on insurance, the real problems started before 9/11, as the stock market started to sour after a decade of record-setting profits.
Rather than take their cut out of the premiums they collect, insurance companies generally turn profits by investing insurance dollars. With the majority of that money in blue chip stocks, it was considered a fairly safe investment for companies, although a significant amount of the money was invested and lost on the dot-com roller coaster.
Then the blue chips also started to go bad, most notably when giants Enron, Worldcom, Anderson Consulting , Adelphia, Global Crossing and Tyco tanked as a result of investor fraud and mismanagement.
A recession, low consumer confidence and other factors also resulted in monetary losses, and the shrinking of stock portfolios. Suddenly the pool of insurance capital was a little too shallow for the large companies, who have been forced to raise rates.
According to the American-based Foundation for Taxpayer and Consumer Rights, the top 10 major insurance companies in that country lost almost $275 million on the stock market over the past few years.
Because insurance companies are having a hard time making a profit on the stock market they have had to look for other ways to become profitable. The most obvious solution was to raise premiums, generating money from customers rather than stock holdings.
Compounding the insurance industrys woes is the fact that fewer people can afford insurance these days, and many are doing without. Younger people tend to only buy as much insurance as they need, and only when it is essential, such as auto insurance. Things like life insurance are most popular for people with families, and people are getting married later in life. House insurance is generally for homeowners, and many people cant afford to buy, or are settling down later.
While Canada was immune to some of these effects, the fallout has been felt on our side of the border. Our own stock markets generally keep pace with the American markets, albeit on a much smaller scale, and have been hit by everything that is affecting the U.S. The multinational nature of the leading insurance and reinsurance companies in Canada and the U.S. also means the problems could not be contained to one country.
In addition, weve had to weather a SARS outbreak, the Mad Cow scare, recurring droughts in the prairies, wildfires in the north and west, floods and ice storms in the east, growing unemployment, growing personal debts and more.
According to Business in Vancouver Magazine, homebuilders in Vancouver have seen their insurance premiums triple from 2002 to 2003, partly because of an increase in construction site thefts, and partly because the industry risks have been reassessed by insurance companies in the wake of the leaky condo fiasco.
Automobile insurance rates in Ontario, Alberta and Atlantic Canada have increased by an average of 20 per cent over the last year alone, according to the National Post. Although the roads are statistically safer, with fewer injuries and deaths, more injury claims are being filed, and the cost of honouring those claims, including personal injury and medical expenses, has increased significantly.
Insurance rates for bush pilots based in the northern provinces and territories have doubled recently, raising the cost of everything from food to transportation for resident and tourists in Canadas remote communities.
Across Canada, approximately one-third of small and medium-sized business owners say they have been negatively impacted by rising insurance rates or by the complete elimination of their coverage because of risks in the last few years, according to the Canadian Federation of Independent Business.
For Whistler, a town that was literally built by risk takers and risk seekers, the rising costs of insurance have been astronomical. Some companies in the adventure and recreation industries have seen their insurance premiums grow by as much at 300 per cent in recent years.
With business already off for the resort this season, the higher insurance rates couldnt have come at a worse time. Some businesses have absorbed the higher rates, while others have had to pass on a portion of the extra fees to customers.
Is there any relief in sight?
Some form of relief should be experienced when the insurance market starts to get competitive again, and starts insuring activities that are perceived to be dangerous. Its yet to be seen when that might happen, or what relief might look like.
Taming the insurance river
Whistler River Adventures has been operating in Whistler for 20 years, and owner/operator Brian Leighton has never seen anything like it. In the last three years his insurance rates have doubled. Still, he considers himself fortunate to be able to find any insurance at all in todays market.
"Insurance availability and cost is really our biggest issue right now," he said. "And its not just rafting thats been affected, this is going to hit all of us. I think were going to see rates go up across the board."
Leighton does see the need for rate increases from the insurers point of view, but believes the perception that rafting is a dangerous sport has worked against his industry. The adventure tourism industry was hit first and hit hardest with increases because of that perception, he said, which is unfair.
According to Leighton, there is currently only one company in Canada that is offering insurance to rafting companies.
He expects the insurance market to recover in the next year, and that other insurance companies will eventually get back into the adventure tourism market. When the level of competition increases, he believes rates will go down for operators.
The latest increase to his premiums did not take Leighton by surprise. "I knew it was coming because I work for the mountains during the winter, and a few of the insurance people we deal with in the ski industry were saying to us get ready, because its going to happen. We knew it was going to go up, but we didnt know how much."
Whistler River Adventures was forced to raise its prices just to cover the added cost of insurance, said Leighton, who worried what effect that might have on business. The company still had a great July, to his relief, although the spring could have been better.
"My feeling is that the people who want to go rafting still go rafting, and price isnt a big deal," he said. But it could be a factor for some resort visitors. "If someone came to Whistler from the Interior for instance, who was making Interior wages, and they walked in to our office to check out the prices, theyd be flabbergasted by the costs."
In addition to the downturn of the insurance industry, rafting companies have also been impacted by new federal legislation called the Marine Liability Act of August 2001. The Act was created after a glass-bottomed boat on Georgian Bay in Ontario sank while on a school trip, resulting in the deaths of two children.
Under the Act, marine operators were no longer allowed to ask customers to sign waivers, and were forced to carry $350,000 in insurance for each and every person in a water craft.
The Act was non-specific, meaning that it could be applied to canoe and kayak rentals, jet ski rentals and river rafting. No distinction was made between different types of watercraft.
Taken together with the rate increases, some marine companies operating in B.C. saw their insurance rates increase by as much as 500 per cent, and were forced to raise their prices as a result.
In a recent Georgia Straight article on the costs of insurance to adventure companies , Ecomarine Ocean Kayak Centre on Granville Island reported their insurance costs jump from $6,000 to $30,000 from 2002 to 2003. Hyak Wilderness Adventures liability insurance quadrupled, resulting in a $10 rate increase for each and every customer.
There is some relief in sight for operators hit by the Marine Liability Act. In a recent release, Transport Minister David Collenette announced changes to the Act that would limit liability for different motorized boats, and exempt "non-motorized or inflatable hull vessels, mainly used in adventure tourism". Collenette acknowledged "the unique activities accepted or performed by the passengers using these types of vessels" essentially that all of the people who go rafting fully understand and accept the inherent risks in the sport.
"Were happy the federal government took a second look at this," said Leighton. "It was ridiculous that rafting companies had to have the same insurance as ocean-going freighters."
Insuring the Cheakamus Challenge
After 20 years, the Cheakamus Challenge Fall Classic Mountain Bike Race was almost cancelled this year after insurance costs increased from $1,800 to more than $10,000 to cover the event.
After shopping around and not finding a better rate, organizer Grant Lamont announced in May that the event, a mountain bike race from Squamish to Whistler up the Cheakamus Canyon, likely wouldnt happen this year.
"Insurance just isnt available," he said. "Even after 14 years (that he had been running the event) and not one claim."
Finding sponsors was also a problem as a result of a sluggish economy. Without sponsorship money, the event couldnt cover its own costs.
Things have turned around since then, with new sponsors including the Resort Municipality of Whistler stepping forward to help.
Cycling B.C. also agreed to sanction the event, which took care of insurance issues by making one day event insurance available to all riders for just $5. WORCA members and carded racers, who have already paid $15 to Cycling B.C. for insurance this season are exempt, which actually lowered the entry fees for many riders.
WORCA saw its own membership fees increase from $20 to $30 this year because of the $15 fee for insurance. Previously, the insurance policy for the mountain bike club encompassed all members, so the per rider insurance costs would vary according to the number of members. Mike Watton, the president of WORCA, says insurance last season, where WORCA had more than 1,000 members, worked out to less than $5 a rider.
Although everything has worked out for the Cheakamus Challenge, Lamont questioned whether the province should have taken a larger role in mitigating insurance costs for adventure travel companies.
"Adventure tourism is a huge economic driver for this province," he said. "Now the government wants to double tourism here, but at the same time theyre not doing anything to help the tour operators that are getting hit with these huge increases."
In a throne speech last February, Premier Gordon Campbell announced that the province had committed to work with the tourism industry to double tourism revenues in the province by 2010. The industry is currently valued at more than $9 billion a year for B.C., plus billions more in indirect spending. It leads in jobs, both direct and indirect, and although the economic downturn is having an impact, it also leads in growth.
Tourism is currently B.C.s number two industry to forestry, although energy (including fossil fuel extraction) is poised to take over, according to analysts.
To speed up this process, the province is fast-tracking through the backlog of applications for tenures to Crown land and water resources in B.C. While that backlog includes everything from resource extraction to commercial developments, applications by the travel and tourism industry make up a significant number of the total.
At last count, 49 of the 501 applications being processed by Land and Water B.C. are related to commercial recreation.
To help the tourism industry succeed, Lamont would like to see the government offer insurance to these companies through a Crown corporation, like ICBC.
"ICBC does a pretty good job for drivers in the province keeping the rates down, and they could do a good job for all the poor event organizers and companies out there that are getting slammed by insurance costs," he said.
"If theyre serious about increasing tourism, then they have to do something to keep the insurance costs low. They should underwrite recreation and tourism."
Cross Country Connections pushes safety
For Ian Goldstone and Chris Waller of Lost Lake Cross Country Connection insurance wasnt an issue until this past year.
"Insurance rates seemed to be creeping up, even before 9/11. Afterwards, weve seen our rates go up 300 per cent," said Goldstone.
The problem, he says, is that all outdoor adventure recreation companies are all treated the same, although the risk varies considerably from one sport to another.
"All outdoor recreation is in one category, including cross-country skiing, which is crazy," he said. "Cross-country skiing and mountain biking are very different from alpine skiing, and downhill mountain biking."
Nor do the insurers take into account the kinds of precautions and approaches that different companies take to ensure the safety of their customers. Some companies send people out with no training or assessment of their abilities, said Goldstone, relying on the waiver if something goes wrong.
"For us, its an important part of our business to have a safety plan, with proper first aid and things in place. We dont just rent the bikes and (cross-country) skis either, we teach people the skills they need before they head out. All of our employees go through the teaching certification process, so our guests get the best instruction possible," said Goldstone.
"This is the direction we were going anyway, before the insurance increases. We found that even giving a short lesson helped riders to get more out of their day, and cut down on the number of injuries."
The Whistler Cross Country Connection has been in operation for six years without a single claim on insurance, and Goldstone feels the companys safety record, as well as its emergency action plans and staff certifications, should be taken into consideration.
"Good drivers get better rates, so why shouldnt companies that are safe?" he asks.
So far Golstone and Waller have been able to absorb the increased cost of insurance, but if rates continue to increase they will eventually have to pass on some of the costs to their customers.
In the meantime, Goldstone says they are working to provide customers with the best possible product, including cross-country ski instructors trained by the Canadian Association of Nordic Ski Instructors (CANSI) and mountain bike instructors who have been through the Canadian Mountain Bike Instructor Certification (CMIC) process. Both of these organizations offer insurance to certified instructors, says Goldstone,
"We want to demonstrate to companies that we are serious about safety, and are doing things that other companies arent doing," he said. "Eventually the industry is going to have to be regulated like this in order to even get insurance. Were doing it now because it seems like the responsible thing to do."
Great Wall insurance still climbing
The Great Wall Climbing and Guiding Centre maintains an indoor climbing gym in Whistler, but stands out because they also take groups outdoors for instruction and tours on real rock.
In the year after Sept. 11, they saw their insurance rates increase 200 per cent. The next year rates increased another 20 per cent. Great Wall is watching the situation carefully, and believes that the rates will be stable for next year.
"The insurance company we have basically told us that if we were a new company, we wouldnt be able to get insurance. There wouldnt even be a question as to whether to insure us," said Bob Allison, co-owner and lead mountain guide for Great Wall.
"The hard part for us is that everyone views climbing as a really risky sport, but thats not the case. The guides we use are really qualified, fully certified mountain climbing guides who have taken all kinds of training, exams, mentorships years and years of hard work and really know their stuff.
"Its a really safe sport. How many other sports are you fully roped in at all times? You can fall doing just about anything but rock climbing."
According to Allison, the owners of indoor climbing gyms around the province have grouped together to create safety standards and bargain for lower insurance rates.
Because Great Wall offers both indoor and outdoor climbing, it has different liability and cant take advantage just yet. And while there are a few companies that do offer insurance to indoor climbing facilities, very few will offer insurance to outdoor operations. According to Allison, Great Walls current insurance underwriters are based overseas.
The company has absorbed part of the rate increase, and prices were raised to cover the rest. Its not ideal for a company in Whistler because operating costs are already high for local businesses.
Although insurance is a must, Allison says his only problem with insurance companies is that they dont acknowledge the steps companies take to ensure the safety of their customers.
"At a guiding level (the insurance companies) dont really acknowledge how much training our guides have. If we ever had to perform a high-angle rescue, every one of my guides knows the procedures like the back of their hands, but insurance doesnt look at that. It doesnt make a difference to them if I hire Joe Blow, who knows how to belay a little, and fully certified mountain guides," said Allison.
"Without the training, its just not as safe as it should be. I feel they should look at that before they decide who gets insurance and who doesnt."
Good timing for Whistler Bungee
Opening last summer, the owners and operators of Whistler Bungee Incorporated didnt see their insurance rates jump they had already jumped by the time they had opened for business.
Whistler Bungee currently operates a short drive south of Whistler in the Calcheak area. With a 160-foot drop off a new bridge built over the Cheakamus River, the group offers the longest drop in B.C.
It took almost 10 years to get all the permits and approvals into place. The last challenge was finding insurance for a bungee operation in the post 9/11 economy. After being turned away by several agents who had sold policies to adventure tourism companies, they at last found an Alberta broker who provides insurance to heli-ski companies that was willing to take them on. Since then Whistler Bungee has received calls from other Bungee operations that were facing the cancellation of their policies.
"Basically, these guys wanted to buy their insurance through the same guy, but he wouldnt take on any other companies, just us. He wont insure anyone else in this business, so we were pretty lucky to find him when we did," said Chris Rollett, who co-owns Whistler Bungee along with Mike Krieger and Don van der Horst.
Rollett says they are happy with their insurance rates and policy, although he acknowledges that their perspective might have been different if they had been around a few years earlier.
"We went in (for insurance) at the top end (in prices), as opposed to carrying good rates for a long time and seeing them double or triple or whatever," said Rollett.
"We were worried about our rates rising this year by as much as 50 per cent, and they stayed the same, so I think the insurance industry has turned around. Were happy with the way things worked out, but it could have been a lot different for us.
"There was a scary moment when we thought we wouldnt be able to find any insurance, or that it would be too expensive."
Customer loyalty pays off
Kim and Sean Wilson of Blackcomb Snowmobiles and Whistler ATV have bucked the trend in Whistler.
While a lot of other companies in their industry have seen rates increase 15 to 20 per cent in the last year, says Kim Wilson, Blackcomb Snowmobiles has only seen small increases in the past seven years.
"I guess it depends on who youre with and how long youve been in business with them," she said.
The company used to go to a Vancouver company for insurance, but switched over to an insurance broker in Alberta. The rates were never cheap, but that was never an issue for the company, said Kim.
"In the big scheme of things, insurance is such a small percentage of our operating costs. We have to buy and maintain machines, pay staff, pay for office space, and things like that," she said. "The cost is not outrageous as the cost of doing business goes, and its just one of those things that we absolutely have to have.
"We havent had any claims yet in all our years of doing business, but just in case."
A brokers perspective
Don Cochrane of Sea to Sky Insurance Services Ltd. provides insurance to a handful companies in the adventure tourism market, but says he is careful to balance those policies with more secure sources.
The entire insurance industry, which revolves around several large companies, is dictated almost entirely by those companies. As a result, the industry as a whole is shying away from high-risk investments and customers.
In addition, the reinsurance industry a handful of companies that insure the insurers against large claims are watching out for their well-being as well.
"We (insurance agents) dont increase the rates, the insurance companies increase the rates," Cochrane explained. "The industry is all about capacity, as in our capacity to pay out on claims, and that capacity took a hit recently. Now (the insurance industry) is in a position where they cant attract enough investment income."
According to Cochrane, "The insurance companies are now starting to get rid of what they would classify as undesirable risks in their portfolios. It was a business decision. One company I know only wanted to do homeowner insurance, not commercial, because that was considered a safer investment."
A strong portfolio is one that spreads out the risk as much as possible. Because of the perception that adventure tourism is risky, and there have been a few large payouts by the industry in recent years, Cochrane says some companies are looking at insurance for adventure companies as a losing proposition. While they do have good safety records, Cochrane says they reached this decision by looking at the potential for injuries and death, and how high the payouts might be.
While insurance increased around 20 per cent for various policies, insurance prices for adventure companies have doubled and tripled because brokers and insurance companies are worried about the high cost of claims, said Cochrane.
The light at the end of the tunnel
There are signs that the insurance company is poised to make a recovery in the next few years, and that things will improve for customers once the pool of capital has been rebuilt.
According to Canadian Insurance, an industry magazine, the Canadian Industry is showing signs of improvement. In the last quarter, the property and casualty insurance segments saw profit grow to $396 million, compared to $108 million at this time last year. Other aspects of the industry also showed gains, while the number of payouts dropped significantly. Even investment profits were up 12 per cent over the previous year, although still down from historical levels.
Every year Canadians spend about $50 billion on insurance according to the Insurance Bureau of Canada. For the average Canadian family, insurance is their fifth largest expenditure. Most businesses couldnt function without it.
In B.C. and Whistler, the continued growth of the adventure travel and tourism economy could partly rely on companies being able to afford insurance. If companies cant, or wont, provide that insurance, what happens next?