A National Parks Service (NPS) decision to hike their required insurance liability limits by 1,000 percent has some outfitters and guides, as well as their insurance companies, navigating the halls of Congress.


The battle began because of an NPS increase in outfitter and guide general liability limit requirements from a minimum of $500,000 to $5 million. The increased limits were required on 2010 renewal contracts for rafting companies operating in Grand Teton National Park.


The operators of outfitters and guide companies in the national parks say the new insurance limits are unnecessarily high and the resulting cost — in some cases doubling their premiums— will put many smaller operators out of business if they become the new minimum requirement for all NPS outfitter and guides.


In addition to whitewater or river rafting operations, outfitter and guide companies lead activities such as mountain climbing, kayaking, free climbing and other outdoor activities, which can be risky.


According to NPS, the higher limits are based on recommendations from risk and insurance experts at PriceWaterhouse Coopers and consultants at insurance broker Aon Global Risks.


But other insurance experts say the higher limits are not only costly but also unnecessary and hard to get for many O&G companies. Limits this high are available only from excess and surplus lines insurers at premiums substantially higher than what the O&G are now paying, they say.


The complaints from the small businesses have reached Congress and the House Subcommittee on National Parks, Forests and Public Lands, which held a hearing in early August to look into the NPS contracts for Wyoming's Grand Teton National Park rafting companies.


Nat Patridge, president of Exum Mountain Guides which operates in Grand Teton National Park and other national parks, appeared at the hearing and said these limits would at least double his company's insurance premium if required when his contract is up for renewal next year.


"We are the biggest mountain guiding service concessioner in the United States, but we are a big service, not a big business," he told Insurance Journal. "A likely result [of paying more for insurance] would be a diminishment of guide wages, and the best guides would leave and would not work for us. More accidents would occur as a result."


Dan Helig, general manager of Jackson Hole Mountain Guides, which operates in Grand Teton National Park, said an increase of this magnitude would cost his firm at least an additional $7,000 a year on insurance.


"That's significant," said Heilig. "We operate on thin margins and would have to tighten our belts. That could include deferring the purchase of new equipment, not being able to provide a pay raise that we had anticipated, and may impact our staff training and scholarships for staff."


Concession Contract History


According to Peggy O'Dell, deputy director for operations for the National Park Service, the NPS allows small, private businesses to operate within the parks through concession contracts and commercial use authorizations. The NPS currently has 515 concession contracts in 130 parks, with 60 percent of those contracts generating less than $250,000 in annual revenue.


O'Dell said that the NPS hired PriceWaterHouse Coopers in 1999 and, in 2009, MFL Consulting and its subcontractor Aon Global Risk Consulting, to review its concession program and insurance requirements as part of and NPS effort to "professionalize" its business practices.


"Our insurance experts indicate that the minimum commercial liability insurance needed for relatively low-risk operations currently starts around $1 million. However, backcountry operations are deemed to carry higher risk, and therefore the expert risk analysis typically results in insurance coverage recommendations that are significantly higher," O'Dell told the subcommittee.


O'Dell said that in order to ensure more accurate current minimum insurance coverage requirements, the NPS uses an independent insurance consultant to get a detailed risk and insurance-requirement analysis for each new concession contract.


O'Dell said the limit requirements recommended in the contract that was offered to Grand Teton River rafting companies in 2010 were the result of an analysis by PriceWaterHouseCoopers Risk Management Division.


In 2011, NPS requested a second analysis from MFL and Aon Global Risk Consulting in response to concessioner concerns that the minimum insurance amounts in the contracts were unnecessarily high.


Insurance Journal obtained a copy of the Aon Global report dated January 11, 2011. "In our opinion, business operations that potentially could result in serious injury to multiple parties should consider liability limits of at least $5 million," the Aon report says. "Based on the loss potential, we consider the $5 million limit to be reasonable for most river rafting and guide situations."


Aon declined to participate in this story.


Asked by subcommittee members if the NPS often encounters claims of $5 million against outfitter and guide concessioners, O'Dell named one on a larger company's $6 million policy. The claim was a result of deaths from carbon monoxide poisoning on Lake Powell in Arizona, near the Glen Canyon National Recreation Area, but was not against an outfitter and guide company.


Fighting for the Small Business


The America Outdoors Association (AOA), the national trade association for outfitters that provide services in the back country of national parks, says the recommended liability levels will cost too much.


According to AOA's David Brown, liability levels now sought by NPS based on Aon's recommendation are not affordable for the small businesses that operate in the parks. Brown has been calling attention to the issue – he also appeared at the subcommittee hearing – so the NPS will reconsider making these limits required on all contracts.


"They [NPS] seem to be unwilling to consider anything other than the recommendation of that [Aon] consultant," he said. "So our effort has been to show the impact that these limits have in limiting activities in the parks and people enjoying these activities."


The AOA also went so far as to hire its own independent actuary, Jim Lynch, to provide another technical analysis of the liability limits.


Lynch, a property/casualty actuary and member of the American Academy of Actuaries, said he researched the history of the parks service and insurance guidelines from the mid-1980s through present day. He also compared the NPS requirements to those of other federal land organizations including the Bureau of Land Management and the U.S. Forest Service, both of which require $500,000 to $1 million limits.


"It was very rare to have a claim that reaches that $1 million limit," Lynch said.


Lynch also found evidence that the NPS policy could be counterproductive.


"It could reduce the number of concessioners or increase the cost [of outfitter services to visitors] to the point where customers who typically would buy the service now don't have the ability to because it is too costly," says Lynch. "Or they strike out on their own, which is more hazardous."


An insurance executive with experience in the market agreed with Lynch.


Prime Insurance has been writing this class since 1985 through its Worldwide Outfitter & Guides Association (WOGA) and is also a member of the AOA. CEO Rick Lindsey, who testified at the subcommittee hearing, says the company has yet to see a claim that even comes close to the $500,000 limit.


"In my 30 years of experience, the $500,000 limit has been more than adequate," he told Insurance Journal, as well as the subcommittee.


"Most people I insure would go out of business if they had to meet those requirements," Lindsey said.


Market Access Ambiguity


While the small businesses complained about the cost of insuring for higher limits, others said that finding policies with $5 million limits is not easy.


The Aon Global report said that Philadelphia would provide $5 million general liability coverage limits for rafting companies navigating anything but "Class 4" and "Class 5" rapids. It also stated that K&K Insurance, which is owned by Aon, would be willing to provide $5 million limits to Grand Teton Rafting companies that navigate "Class 4" or "Class 5" rivers. Rivers are ranked by navigation difficulty and water roughness from "Class 1" to "Class 6," with six being the most dangerous – if not impossible – to navigate.


But Prime's Lindsey questioned this. He told the lawmakers he had personally telephoned both organizations cited in the Aon report and was informed the information was inaccurate.


When contacted by Insurance Journal, Philadelphia Insurance said the information in the report is accurate but declined to comment further. K&K said it had not been aware of the Aon document until recently and did not comment on its contents.


Pachner & Associates and Pachner Risk Management, a Bedford, N.Y. agency that focuses on the non-motorized outdoor recreation segment, also questioned how easy it is to find the high limits.


President Donald Pachner said he has not been able to place anything higher than "Class 3" rafting companies with Philadelphia for at least the last several years. "Once the paddling reaches Class 4 and 5 there are a more limited number of insurers that will entertain the risk," he said.


Pachner said he also priced a policy for an insured at the $5 million limit and came back with a premium that is 36 percent higher than what that insured currently pays.


"If the NPS imposes these limits, only the largest corporations would be able to afford them and obtain contracts, even if they aren't passionate about what they are doing," he says. "The leverage of being a large business will give them the advantage over passionate and well managed smaller-to-midsize guide services."


Pachner, whose agency is a member of the AOA, said these new requirements would have an impact on his agency, as well.


"By increasing the required limit of liability and consequently restricting the insurance marketplace, the National Park Service will be impairing my ability to find the most appropriate and most competitively-priced insurance for our clients in an insurance marketplace with an uncertain appetite for outdoor adventure risks," Pachner wrote in a letter to the subcommittee on August 13.


According to Prime's Lindsey, the traditionally hard-to-place outfitter and guide business is written by only a few excess and surplus companies, including Prime. The exception is during a very soft market like the one the insurance industry has been dealing with for some time.


"In a soft market this class attracts new players but over a three-to-seven year period they learn it's a very tough class and either cancel policies or go broke," said Lindsey.


AOA's actuary Lynch addressed the current market cycle in his report and what would happen to the affordability of a $5 million general liability policy when the market hardens.


"High-risk businesses like outdoor recreation will suffer more than most. Rates will climb higher, rising perhaps 50 percent or more. Less coverage will be available. For some classes, a $5 million limit may not even be available," he wrote.


What Now?


Brown and the outfitters do not know what, if anything, lawmakers will do. The subcommittee recessed aftering the hearing until Sept. 9, and no updates were available on the matter. However, Chairman of the subcommittee, Rob Bishop, R-Utah, said that the most important thing is for the parks service to make sure it provides a "pleasant experience" for those visiting.


"If indeed we have small businesses that have become an essential part of making it pleasant, we want to make sure that it works for their business model, that it not be too cumbersome and that it not be too burdened down with regulations to make it effective," he said. "I think we have a chance of maybe talking to the parks service sometime in the future about the direction in which we are going, especially with the small businesses that are concessioners and the requirements that they have."


Brown said his group still plans to work with the NPS.


"Some of the info gathered at the hearing and the attention the issue got will hopefully put [NPS] in a better position to reconsider," he says.


Lindsey said that while he could make more money if he sells the concessioners higher limits, that is not his main goal.


"Us making more money isn't going to provide a stable market. It will throw the market into more instability for smaller businesses," he said. "Obviously I want to make money and have a successful company, but having a stable market is better for me, better for the parks, and better for small businesses. And, if they can't afford it and go out of business, then you have no business."


(Watch the Archived Hearing Webcast)