Seeking Coverage for Thrill-Seekers

Want to zipline down a mountain? Kayak with killer whales? Run a marathon in the Arctic? Yes? Well (remarkably), you’re not the only one.

Around the world, the popularity of adventure tourism is exploding. And if the “Yahooooos!” in the distance aren’t a big enough tip-off to that, the nice folks at George Washington University and the Adventure Travel Trade Association (ATTA) have done some research. In their 2013 Adventure Tourism Market Study, they discovered that the value of the global outbound adventure travel sector grew from $89 billion in 2012 to $263 billion in 2013.

There’s no hard-and-fast definition of “adventure travel.” The ATTA says it has “three main components for the traveler: 1) physical activity, 2) a connection to nature and the environment and 3) an immersive cultural experience.” But the insurance industry’s definition is a little broader. “Adventure tourism may be defined as a leisure activity involving participants that usually takes place in an unfamiliar, exotic or wilderness location,” according to Darren McDonald, senior underwriter at Risk-Can Underwriting Managers.

So basically, in the eyes of the biz, an afternoon hike in Riding Mountain National Park is as safe as a snooze, but anything more ambitious is probably classified as “adventure tourism.”

“Adventure tourism begins with a really solid risk management plan”

The point is that even though the adventure industry may be booming, the insurance industry has traditionally been—and will continue to be—extremely cautious when it comes to providing coverage to businesses that make their money off adrenaline junkies. “It’s a very limited segment of the market that will do adventure tourism, because, for the most part, it’s high-risk,” says Mark Woodall, president and CEO of Special Risk Insurance Managers. “A lot of the participants are thrill seekers, and may not be physically in tune with its requirements or have the experience. Very few people that bungee jump, as an example, have done it previously.”

So if brokers want to place this business, they’re going to have to convince the insurer that an inherently risky operation is a safe bet—and this can require a lot of work before insurance policies are even considered. 

Managing the Risk

“Adventure tourism begins with a really solid risk management plan,” says Sean Bell, vice-president at Canadian Insurance Brokers. Proving to insurance companies that an Arctic tour guide or heli-ski operator has a plan for worst-case scenarios will be key to obtaining coverage. And one of the most important risk management factors that insurers will scrutinize is the company’s personnel.

“When we look at [this business]…it’s the operator that’s key to us. Are they disciplined? Are they experienced? Are they capable of dealing with a [negative] situation?” says Woodall. “Typically, when we sell a policy, we’re probably putting up $5 million of liability coverage, based on their credibility.”

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Experience as a guide or a deep knowledge of the outdoors, of course, doesn’t automatically make you a qualified operator. “I have a couple bigger clients that are very well connected in this industry. So a lot of their instructors have been guiding for some of these established touring companies and then they want to do this on their own,” says Bell. “They’re offering these tours, they don’t even have a waiver; they don’t have a risk management plan. And I say, ‘Listen, slow down. I know you want insurance next Friday and I know you’ve got 10 people ready to go on a trip into interior B.C., but you’ve got to show you’ve thought of everything.’ It may be well-thought-out in their mind, but it’s got to be put on paper.”

When Rob Jordan, vice-president at Everest Insurance Company of Canada, is evaluating an application for insurance, the first thing he looks for is the operator’s commitment to safety. “That is often evidenced when you get an underwriting submission and it includes their emergency plans. The training that is provided to all their staff and guides, certification levels that they may hold or require their staff to hold, are all signs that an operator realizes the risks that tourists will have, and they’re doing their best to ensure that their clients are getting a safe experience, but still experience that element of thrill.”

Woodall adds that many adventure tour companies only operate seasonally—and that means there’s often a lot of employee turnover. “In a lot of cases, they hire summer students. At the start of every season it comes back to the discipline. How are they training them? Are they making sure they’re disciplined? Are they controlling that?”

Having effective emergency and communication plans will also factor into the success of an insurance application. Because many of these activities are in remote locations, far from emergency services, “negligent rescue” is a major risk facing these businesses, says Jordan. “If something happens 75 to 100 kilometres away from ambulances and police, the clock is ticking to make sure that help can get there to minimize injuries and prevent death. The tour operator or the guide needs to have their communication and emergency plans well-thought-out.”

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Woodall gives the example of a member of a mountain climbing group who had a heart attack while climbing. The operator had an emergency plan, knew how to identify his location and how to contact emergency services. “In this case, the operator knew right away he had a satellite phone. He knew who to phone, and they were able to send in a chopper to pick up the sick man. It was a very positive ending.”

But given the nature of this business, not all situations will end as happily. Industry experts, therefore, stress that one of the most crucial features of an adventure tourism risk management plan is the use of waivers. 

Waiving Liability

When Deanna Loychuk was hooked onto a zipline and sent on her merry way, she didn’t expect to get stuck on the line. And if you were in her position, dangling there—not knowing how you would get down, if you would get down—the last thing you would want to hear is: znnnnnng. Her guide, who was out of sight, had sent along the next participant, Danielle Westgeest. When Westgeest barreled into Loychuk, both women were hurt, and the two subsequently sued the zipline operators, Cougar Mountain Adventures and Whistler Skyline Eco-Adventures, for their personal injuries.

Despite the fact that the accident was very clearly caused by employee negligence—something Cougar Mountain Adventures even admitted to—the Supreme Court of British Columbia dismissed the lawsuit. The judge ruled in favour of the defendants because, prior to the activity, both women had signed a waiver of liability that specifically stated that participants had relinquished the right to sue or claim compensation after an accident—even if that accident was caused by negligence.

To find Full Participant Coverage, a broker must usually looks to the specialty markets.

Both CIBI’s Bell and Everest’s Jordan hold this 2011 lawsuit up as an example of the importance of waivers. “Without the waiver, the defense that the insurance company is going to put forth is weakened,” says Jordan. In other words, if a participant can honestly say, “You didn’t tell me I could get injured or die from this activity,” then an insurance company—or the client—could face some hefty claims.

When discussing best practices, Sean Bell gives the example of ski operators who post the waivers throughout their facilities, and often include the waiver right on the back of the participant’s lift ticket, which is secured to their ski jacket. “There’s never a situation where [the skier can say], ‘I never saw it.’ You sign it at the booth and then you wear it on you. Sometimes it’s even posted on the base of the chair lift,” he says. “That’s rock hard, legally.” 

Getting Coverage

Once a broker has helped his client create a solid risk management plan, he can go to the marketplace and look for coverage. But he won’t find many insurers in the standard markets willing to write this business. If they do provide a general liability policy, there will likely be some important exclusions. “What you have to be careful with, even when you get [the business] into the standard market, is that all of these insurers, even if they say they’re okay with the light adventure tourism aspect, don’t offer participant coverage. That’s really the make or break,” says Bell.

Risk-Can’s Darren McDonald says the largest exposure associated with adventure tourism is usually injury to participants, so a policy that excludes “Full Participant Coverage” won’t be of much use to clients. To find this coverage, brokers must usually look to the specialty markets.

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Next, depending on the equipment used, the activities offered, etc., certain extensions will also need to be added to the general liability policy. If the tour operator takes participants kayaking, for example, you need to ensure the general liability policy includes a watercraft extension. Likewise, if the tour takes place in a heavily forested area, a firefighting expense extension—which covers the cost of battling forest fires caused by negligence— could be a good investment. “These are all filling in the gaps of a standard general liability [policy],” says Bell. “You’ve got to build [a policy] for a tour operator.”

He adds that many adventure tour operators are now, essentially, acting as travel agents. “A lot of these tour operators are getting into that game. They’re providing the turnkey tour. You end up with a package that you’re mailed for plane/train/bus tickets and the tour. So, you’re acting as a travel agent. A general liability could exclude a lot of that professional liability. I do have clients that have the travel agent professional E&O policy.”

He also suggests that tour operators add Accidental Death & Dismemberment (AD&D) coverage as well. “Even with outof-province or in-province medical [coverage], there are going to be a lot of costs incurred,” he explains. “As a provider, here’s our good faith. We have coverage if you’ve lost an arm or a leg in whatever accident.” Bell says he typically sees the most claims frequency on AD&D policies for these risks.

Though these policy extensions are going to cost extra, Everest’s Rob Jordan says insurance for adventure tour operators isn’t as expensive as some of them believe it to be. “If your operating season is four months, and you might not be doing anything the rest of the year, you’re not going to have a huge income. If [the coverage] is rated on revenue or participants, those numbers are still going to be fairly low, so the premiums for a lot of operators are going to be under $10,000. The larger ones that maybe have more yearround operations, they’ll be paying more. But it’s not as cost prohibitive as maybe people think.”

Despite this, Woodall says some tour operators exclude necessary coverages, like participant injury, in order to save on premiums. “A lot of tourism operators do not have the right coverage,” he says. And by skimping in the short term, they’re exposing their businesses to major liabilities in the long term. “A lot of people still buy insurance based on price, and there’s nothing you can do about it. But, unfortunately, they do learn when they have a claim.”

Though adventure tourism claims are rare (not to mention unique—hungry bears breaking into clients’ remote properties, and the like), they can be severe. So, these are tough lessons you’re going to want to help your clients avoid.

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Copyright 2014 Rogers Publishing Ltd. This article first appeared in the July 2014 edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.