Feature: Are you happy with your insurance premiums?
20/06/2003

Too risky to insure?
Photo: Mountain Guide Libby Peter scrambling on Y Gribin, © Ray Wood

Post September 11th, the world is a different place. Risk has placed itself firmly upon the agenda and it is hard to imagine a return to the previous age when a more relaxed approach to how we live prevailed.
In most people’s minds, the dread of international terrorism is now a very real factor. It affects who we go to war with, where we travel in the world, the security measures in our airports, our immigration policies. Yet 9/11 also reaches further into our lives in the way that it has kicked a rather large hole in the side of the insurance business, both in direct payouts resulting from the actual disaster, but also in the way it has impacted upon the international stock market.

The stock market has been haemorrhaging confidence for a number of years, and the recent events (9/11, The Iraqi War, SARS) have further compounded the nervous downfall. The state of the stock market has also had a knock on effect. In the formerly healthy market, Insurance companies could add significant value to their invested funds by playing the market, but this avenue has been closed down, and Insurance firms are being forced to pass on the loss to their customers by raising premiums.

Clearly our perception of risk has shifted; despite the fact that we all lead healthier and longer lives we increasingly feel the need to insure against the unthinkable - yet no doubt very unlikely - consequences of our (or other’s) actions. A wholesale sanitisation of our lives has steadily built up to a point now where we are in danger of tripping ourselves up with the pernicious creep of regulation and control measures.

The litigious culture that was once constrained to the US, has spread to Europe, infecting the mindsets of the people of this country. ‘No win – no fee’ operators can be seen on the high streets of Wales today, tempting members of the public to bring forward liability cases and conversely tempting some small businesses to give up hope of ever making an honest living.

Not surprisingly, within this climate of fear and blame, insurance premiums have undergone a rapid reappraisal, with the current trend being ‘up’, and ‘up’ in a seemingly exponential manner. Escalating insurance premiums are not exclusive to the outdoor sector, or indeed Wales.

Throughout the UK, all aspects of business are facing rising insurance costs. Some sectors, such as construction and manufacturing are being hit hard by year on year increases. The small business is the most vulnerable to these external forces. They lack the size or the resources to absorb these body blows and it is worrying to note that insolvency rates are at their highest for 8 years.

The simple truth is that many businesses throughout the UK are facing the painful choice of operating illegally or closing down.

The question is:

Is the outdoor sector experiencing these problems to the same degree?

To an extent it is fair to say that the sector is yet to see any real closures resulting from insurance premium rises, but if the current trends continue, then disaster is looming around the corner. The fact that many of the small businesses in the area are still surviving is a tribute to how well run and efficient they are, rather than a reflection of the scale of the problem. Nonetheless, there is only so much that a small business can absorb before it reaches the critical folding point.

Many businesses are fearful of passing on the costs to the customer, in case they lose their custom. Internal cuts are made, but there comes a point when the situation becomes untenable

The following case studies show a common thread of rocketing costs, with no real certainty that the premiums will plateau at a stable level.

DMM International Ltd
Nature of business: Manufacturers and distributors of climbing and safety equipment.
Based in: Llanberis, Gwynedd
No of Employees: 121
Years trading: 21.
They have been with their current insurance company (Zurich) for 10 years.

The pattern of insurance costs increases for the last decade is as follows:

1992-2000 – +5% per annum,
2001-2002 – +18% per annum,
2002-2003 – +50% per annum.


Outdoor Alternative
Nature of business: Providers of residential and other services to groups using the outdoors.
Based in: Rhoscolyn, Ynys Mon
No of Employees: 3
Years trading: 17
They had been with the insurance company TCS “LeisureLine”, (underwritten by QBE International Insurance Co Ltd) for 3 years, although for 15 years with the broker, TCS who had originally specialised in outdoor liability.
The premiums had reduced by about 45% 2 years ago when Jardine Lloyd Thompson entered the market with a cheaper product having worked with the Institute for Outdoor Learning. This year the premium increase was to be a minimum of £3000 which was a 348% increase minimum.
As a result of this increase, Outdoor Alternative has decided to leave the activities market and concentrate on the residential aspect of the business.

Action Centres UK ltd
Nature of business: Residential outdoor activity and conference centres.
Based in: Llanbedr, Gwynedd
No of employees: 4 (plus, up to 6 volunteers)
They have been with Royal and Sun Alliance since March 2002, having been forced to change because the previous company no longer wanted to offer them liability insurance. The change over resulted in a 450% increase in the premium.

Climbing walls are another part of the outdoor sector that has been knocked sideways by the price hike. (For example The Beacon Climbing Centre located in Waunfawr, Gwynedd has seen their insurance premiums rise by 1200% in the last 4 years) This year at the British Mountaineering Council (BMC) AGM there was a special discussion on the matter, with representatives from operators and manufacturers. The general feeling was that the current position was just about bearable, but that further anticipated increases would have a serious impact.

Graham Alderson, the BMC Climbing wall officer commented in a recent article for Summit magazine, that he felt the future for privately run climbing walls was very bleak. The introduction read, “There’s trouble looming in the climbing wall world. Predictions [from industry operators] suggest that 2003 will see walls starting to close, and the remainder spiralling in cost to use.” The same article also quotes Steve Richardson, chair of the Association of British Climbing Walls, “Continued high increases in insurance premiums will see the closure of independent climbing walls in the UK.”

A number of possible solutions were discussed at the BMC AGM, including the introduction of induction courses, whereby each user is tested for competency. Unfortunately this system will heap yet more logistical and financial burden upon the wall operator. In Snowdonia, a climbing wall such as The Beacon is dependant upon the visiting market to a far greater degree than an inner city wall. A busy wet weekend influx of new customers, many of whom will not have visited the wall before would be impossible to plan for.

Not all parts of the outdoor sector in the area are suffering to the same degree. For example the retail trade has not seen the same levels of increase and similarly the many Local Authority activity centres based in Snowdonia are protected from the harsh vagaries of the insurance market by the umbrella cover that the Local Authorities arrange for all their activities. In other areas, strength in numbers has given some protection. The Association of Mountaineering Instructors have over 600 members and consequently the block booking allows their members a reasonable premium level, albeit one that has increased from £90 per annum (for £2 million cover) and £120 per annum (for £5 million cover) in 1999-2000 to £160 and £215 respectively in 2003-2004.

Whether it is a question of stifling growth, discouraging expansion or actually causing businesses to withdraw from certain activities, the effect of the new regime of insurance premiums is very negative. Much of Snowdonia-Active’s work revolves around trying to create an atmosphere of positivity, a culture of confidence, whereby business people will feel happy about investing in new ventures and expanding existing businesses. The insurance issue casts a deadening shadow over the sector and for many operators it is the final straw.

So what can be done to change the situation?

An obvious solution is to give individual quotes for businesses based upon specific risk assessments, rather than blanket rates for broad areas of activity. Obviously there is a cost associated with such a course of action; however Gwynedd Council have made positive noises about providing consultants to carry out this work. The vast majority of outdoor sector operators have excellent safety records, yet they seem to be paying for claims made by other businesses.

It has also been suggested that the government should force insurance companies to take all cases to court, in the hope that this will discourage individuals from pursuing claims without considering the consequences. Insurance companies often settle out of court in attempt to reduce costs; unfortunately this approach is supporting the growing claims culture.

Another key factor is competition. Traditionally there have been relatively few insurance providers that have serviced the outdoor sector. If there is limited choice in the market then the tendency for premiums to rise will be greater. Many operators have expressed the view that they are nervous of experimenting with new insurance companies, because they perceive that they are being rewarded for their loyalty. Arguably the government should take steps to stop the establishment of monopolies in the insurance market.

Perhaps, the real change needs to come in society’s attitude to risk and responsibility. Outdoor people are used to making informed decisions in apparently risky environments. They understand the value of judgement and traditionally have accepted the consequences of their own actions.

The recent advent of indoor climbing walls and the general improvement and growth in the provision for outdoor activity has significantly improved access to outdoor activities for members of the public. It has been suggested that this influx of new blood has brought with it a subtle shift in attitude to personal responsibility. Nowadays the first reaction to an accident or incident is a witch hunt; someone must be blamed for whatever has happened, and furthermore that person or organisation must be made to pay for an assumed lack of care.

The simple notion that, on occasion, something untoward will happen as result of nothing more than coincidence appears to be unacceptable in modern life. Whatever happened to chance or just plain bad luck?

The problem is also perhaps one of perception. There certainly appears to be a mismatch between the perception of outdoor activities and the reality of the actual level of risk.
The recently published Wales Outdoor Activities Awareness Forum report highlighted this point. The proportion of accidents occurring in the mountains of Snowdonia is miniscule, when you consider the volume of users. Yet, hysterical newspaper articles and editorials in recent years have painted a very different picture.

Clearly there is a need for the outdoor sector to present a sensible and balanced image of outdoor activities. More accident research and monitoring will help to build a truthful picture of the nature of the risk. Simple improvements in the availability of weather and conditions reports, coupled with the dissemination of consistent safety advice will help to both reduce incidents on the hill and improve the image of the sector.

Nonetheless a large part of the responsibility for the current position, where innocent operators in the sector are being pushed towards insolvency, lies at government level. It is incumbent upon the current government to take control of the situation and start protecting small businesses from these external forces. The growth potential of this sector (and many others) is being crushed. If something is not done then the effect upon the economy will be devastating.

Simon Panton.

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