How insurance companies are affecting cottage country

Insurance is killing lake activities—and their associations



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Here’s a tale of woe from a tiny, unassuming cottage association that’s become so spooked by the insurance industry that the group’s spokesperson won’t risk seeing her name in print:

Every summer for a generation, the 138-member association’s executive would collect water samples from their small lake in Muskoka and send these to a lab to test for E. coli, as well as substances that impair the lake’s clarity. They even did some of the more basic tests themselves. Then they’d publish the results in their summer newsletter. A standard biological test, plus a bit of data the Ministry of the Environment is supposed to collect in this post-Walkerton era. Innocent stuff, so what’s the harm?

Last year, however, the insurance broker who handled the association’s general liability insurance policy regaled “Mary,” its long-standing treasurer who didn’t want her name published, with a cautionary anecdote. It was about a cottage owner who bought a property based on similar information. Over time, the broker said, algae became a problem and eventually the owner sued the association, claiming that he’d been misled.

The moral of the broker’s story: Quit testing the water, and never put anything in print.

Welcome to a business climate in which increasingly wary insurers seek to immunize themselves from the costs of liability lawsuits launched against not-for-profit associations. Or at least that’s the pretext given. Whatever the cause, the downstream legal risks associated with such seemingly benign activities made this anonymous association’s insurance rate balloon from $400, in 2001, to more than $1,600 this year. Their broker offered Mary some worldly advice: “You must limit yourself from doing anything that could be a potential problem.”

Trouble is, this “potential problem” seems to apply to just about everything cottage associations do for their members. Across cottage country, these often highly informal, volunteer-run organizations, with minuscule budgets and little or no administrative infrastructure, are facing 50- to 400-per cent increases in their liability-insurance premiums, which have traditionally provided such groups with funds to defend themselves against lawsuits arising from everything from accidents and negligence to, well, algae in the lake. More than a few associations have discovered they can’t even persuade underwriters to give them a quote. The 320-member Go Home Lake Cottage Owners’ Association, in Muskoka, was turned down by its insurer when it came time to renew its 2004 liability coverage. The group did eventually get the policy it required, but at a hefty price, says president Al Higgs. “Our premiums have increased from $700 in 2000 to $4,650 in 2004. The cost has reached a point where it’s threatening our existence.”

“We’re the victims of larger market dynamics that have made the insurance industry more risk-averse,” says Terry Rees, executive director of the Federation of Ontario Cottagers’ Associations (FOCA). As a result, premiums now threaten to consume the lion’s share of a typical cottage association’s budget. The association that doesn’t want its name used sees no less than 62 per cent of its annual revenue, which comes from its modest but growing $30 membership fees, going to pay for the policy instead of activities. “All of a sudden,” Rees notes, “the math doesn’t work.”

The shift has forced FOCA and several hundred cottage associations to change their coverage in the last two years. Previously, FOCA had a group plan for its members, but underwriters have been insisting that associations obtain their own coverage, including special policies specifically for high-risk activities, such as speed-boat races.

The ramifications have troubling consequences for the social side of lakeside life.

Associations have had to cancel sporting events or regattas unless they agreed to operate them according to highly stringent risk-management rules – for example, training volunteers and obtaining waivers from anyone involved in an event. Though routine for established organizations, such measures can prove to be highly demanding for very small, loose-knit volunteer groups with few resources. Unable to renew its policy, last August the Haliburton Lake Cottagers Association had to put long-standing activities such as swimming lessons and the Tuesday kids’ bingo night on hold while it searched for a new policy. Facing rate hikes, some associations have opted to disband, choosing to operate informally, with only personal insurance coverage as a backup.

More troubling is the fact that many cottage associations have traditionally taken it upon themselves to look after certain safety issues, such as marking dangerous submerged rocks in the lake, responding to fires, and maintaining local roads. The new general liability policies for associations now specifically exclude these sorts of activities and, in some cases, they’ve created Catch-22s. An association that had routinely marked rocks could, theoretically, be sued if some one collided with a submerged boulder that had shifted in the water. But the same association could be sued if it stopped marking rocks, because there was a general expectation that it had assumed responsibility for this aspect of boating safety. “Damned if you do, damned if you don’t,” says Mary.

The other significant concern is that any event involving food, such as corn roasts or association picnics, is discouraged by insurers because there’s the chance it could involve the consumption of alcohol by participants. According to a 1999 Supreme Court of Canada ruling on so-called “vicarious liability,” responsibility for alcohol-related driving accidents can now be laid at the doorstep of individuals or non-profit groups that host events where liquor was consumed. Organizations seeking liquor permits need to take training courses on how to serve alcohol responsibly, something cottage volunteers are unlikely to want to do in their spare time. On Mary’s lake, that meant holding a dry annual picnic last August, the first ever. “Everything I brought up with the broker, it was ‘No, don’t do that either,’” Mary says. She describes the systematic whittling away of the association’s activities as dejecting. “It’s reaching the point where you don’t want to be a volunteer anymore.”

“It’s been a travesty,” Rees adds, pointing out that FOCA itself is threatened by these developments because it relies on dues from cottage associations that are increasingly pressed for funds. “So many people who give freely of their time are now worried about getting sued. It’s just a horrible development for cottage communities.”

Not everyone shares Rees’s pessimism.

One Toronto broker (who refuses to be named) maintains that “there are lots of available policies for cottage associations.” But many of these merely rein force the message that cottager groups should stop running events, as Go Home Lake discovered. One insurer was pre pared to give the association commercial general liability coverage, but the policy excluded well-water testing, lake-water testing, and organized water programs. As for the claim of “availability,” David Bliss, a broker with Dalton Timmis Insurance Group who finally secured coverage for Go Home Lake last year, says, “We went to almost 30 insurance companies and came up with nothing.”

The insurers’ gain, quite plainly, is the cottage community’s loss. The majority of associations regard the sponsorship of lakeside activities—waterskiing competitions, regattas, swimming lessons, or barbecues where liquor is served—as under takings that do much to enhance the social side of the cottage experience. If they want to continue these, brokers are telling their clients, then associations must face up to the risks involved.

Jane Voll, vice-president of policy development and chief economist for the Insurance Bureau of Canada, argues that there’s growing litigiousness across North America and in countries like the U.K. and Australia, with an associated trend on the part of lawyers to name more parties in liability lawsuits. Even if such actions turn out to be groundless or frivolous, she says, the respondents have an obligation to defend themselves, and the insurers, in turn, are on the hook for those legal costs. Voll concedes that Canadian insurers are reacting in part to the U.S. environment, which, by all accounts, is far more litigious than Canada’s, and where “tort reform”—code for capping astronomical damage claims—has shot to the top of the national agenda. But, she maintains, Canadian premiums have also risen because of an almost 30-per-cent jump in the cost of claims in the last year.

Not so, says a new report on precisely this issue, released last August by the Voluntary Sector Forum, a national advisory group examining how public policy affects Canada’s 161,000 not-for-profit organizations. The study, “Liability Insurance and the Voluntary Sector: Framing the Issues,” concluded that there is no relationship between claims and premiums. Indeed, the report found a dearth of hard data that would support the industry’s case for such large premium increases, which affect a huge range of groups in the so-called “third sector,” from summer camps to cottage associations to hospitals. Bliss cites the example of the huge Georgian Bay Association, of which he is a member of the board: It hasn’t made a claim in six or more years.

In a survey and consultations with 120 volunteer-based groups, the report found that 87 per cent of such organizations had experienced rate hikes since 2001, a quarter of whom saw their premiums double. Furthermore, 96 per cent of the organizations participating in the survey said they’d seen no change in their claim history, but still have had to absorb price increases. Indeed, the sharp bump in rates—as in other insurance markets—may have more to do with the rapidly consolidating insurance industry’s profit drive in the last two years.

Risk-management solutions

Detailed risk-management procedures are seen to be part of a potential solution to the problem of unaffordable policies, but such measures work much more effectively for organized non-profits with the infrastructure to put them in place and oversee them. A handbook published by Ontario Nature lays out the architecture of a risk-management plan, which includes functions such as identifying and training staff, documenting activities, securing permits, inspecting facilities, and devising emergency plans.

All this planning involves “transferring risk” away from the association, as the insurance experts say. This spring, FOCA is publishing a risk-management manual, providing advice on best practices. Much of it is common sense: ensuring that there are first aid/life-saving kits at regattas; posting rules and regulations at sporting events; and flagging personal safety risks. “This is standard practice for many not-for-profit organizations and it’s high time that cottagers got to the same level of sophistication,” says Ian Rankin, vice-president of LMS Prolink, an insurance broker that obtains coverage for about 300 Ontario cottage associations and road groups. “Associations that can demonstrate, over several years, a consistent approach to risk management will be rewarded with better premiums.”

Y et David Bliss warns risk-management plans don’t guarantee more affordable premiums, and the Voluntary Sector Forum report bears him out. As well, some brokers are skeptical about whether cottage associations have the capacity to do this kind of planning. “There’s no such thing as a cottage association with a good risk-management program because there’s no consistency in their operations as their directors are constantly changing,” says one. Others feel that smaller and mid- sized associations can learn from the larger organizations with long-established practices. They have little choice, if they want insurance. As Rankin says, “There’s no quick fix for this.”

Perhaps there’s another way to look at the dilemma: The Canadian insurance industry’s outrageous profits last year—a $4.3 billion windfall—have prompted loud calls for reduced rates on all categories of policies. Cottagers, appropriately enough, find themselves hoping for a holiday from the hefty hikes that have threatened to ground their programs.

This article was originally published on January 1, 2007

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