It’s always a hot topic in insurance conversations with river outfitters – “Why do carriers use revenue as a rating basis for my General Liability coverage?”
The thinking behind this from the carrier’s perspective is that more revenue equals more exposure to risk. If you are selling more adventure experiences, and making more money, that means you’re putting more people in risk scenarios which equates to more risk that the insurance carrier is covering on your behalf.
We’ve heard the arguments for this, such as outfitters investing more time/energy/finances in top notch equipment, into training their staff, etc; and therefore needing to charge more per adventure to cover the higher costs of facilitating their trips. Why be penalized for upping your standards? Perhaps, rating General Liability based on User Days might be a better path forward? That is all a possibility for the future and it’s something we’re in active conversation with carriers about. Resolutions of this argument will vary by carrier, but we are pushing to find a more advantageous path forward for outfitters.
The Problem
For now, we’re still in a reality where revenue is the rating basis for your General Liability premium. The biggest and most impactful obstacle here for some outfitters is that they have significant amounts of pass-through revenue. As a rough example, an outfitter in the Grand Canyon might sell a rafting adventure for $4k to a participant, but then $1k of that revenue might immediately get passed on to various partners or vendors like the National Park Service, a hotel, or transportation providers (helicopter, jet boat, etc). Those partners and vendors are already paying for their own insurance coverages, and the outfitter themselves shouldn’t also need to pay insurance for that portion of their “revenue” which isn’t even directly connected to outfitter operations. After consulting with an experienced outfitter underwriter, we have found there is a good way to structure P&Ls to address this issue, clarify income categories, and save outfitters some money on their insurance premiums.
The Solution
If the above scenario describes you, let’s figure out exactly which “revenue” categories could potentially be excluded from the revenue you report on your insurance application. Sometimes, a carrier may require your past year’s financial records in order to support your annual revenue estimates or your audits. For this reason, it’s important to have your P&L set up in an accurate way that shows how these revenue categories are handled. Here is how we recommend doing this:
-
Pass-Through Income:
-
Pass-through income is any money that, dollar for dollar, comes in and then gets paid out directly to another vendor (ie $350 of the $4k experience price is for a hotel room stay on each shoulder of the river adventure, so when the experience is booked with you, you book the hotel rooms and pay out that $350 directly to the hotel).
-
If you have pass-through income at your business, this can be excluded from your reported revenue to insurance if you list it as a contra-income category in your P&L “Income”. Example is provided below in next section.
-
-
Credit Card Processing Fees:
-
If you (not your reservation system) collect credit card processing fees when a participant makes a reservation, and then you pay them out to the processor; credit card processing fees can be excluded from your reported revenue. This can be accomplished by listing it as a contra-income category in your P&L “Income”. Example is provided below in next section.
-
If your reservation system is the one collecting credit card processing fees and paying them to the processor (ie you never see that money), then it is already excluded from your reported revenue and you don’t need to do anything different.
-
-
List as “Other Income” on your P&L:
-
Travel Insurance Commission can be listed as “Other Income” and then excluded from your reported revenue.
-
Credit Card Rewards can be listed as “Other Income” and then excluded from your reported revenue.
-
Interest Income can be listed as “Other Income” and then excluded from your reported revenue.
-
Cancelation Fees can be listed as “Other Income” and then excluded from your reported revenue.
-
Example
Here is a simplified example of what this might look like for an expanded Income section on your P&L:
The “Total Income” amount in the Income section of your P&L, less any “Other Income” categories discussed, can be your reported revenue for your insurance application.
If you were to condense all the lines of your P&L, you should wind up showing the $2,900 total for the Income Line. The condensed version of the P&L is what you can submit to the insurance carrier when they request your financial documents. While managing the pass-through revenue and credit card processing fees as contra-income in your income section will help with excluding it from revenue, there can be challenges with this. Make sure you talk with your CPA or Finance Director to determine feasibility. But if possible, having that condensed income line on your P&L reflect closer to the number you are reporting for revenue could make a big difference in the carrier’s willingness to accept your numbers. If the pass-through revenue and credit card processing fees are not listed as contra-income, you may not be able to get these excluded from your revenue depending on the carrier.
Conclusion
Once you have set up your P&L as recommended above, and you go to complete your insurance applications, you can remove these categories from the revenue number you report. For some outfitters, this tweak will make a small change, and for others this might make a really big difference in your insurance premiums. Either way, it’s progress, and we’re happy to help!
About the Author
Ruthie Rivers is an Adventure & Entertainment Risk Consultant on the Granite Insurance team, who leads the agency’s nationwide river outfitter program. In her previous professional life, Ruthie herself was an operator in the outdoor adventure industry, which gives her understanding and insight into running an operation and into employing risk mitigation strategies. Her mission is to empower outfitters through approachable industry-specific insurance education and guidance, making complicated topics easier to understand and act on.
Ruthie can be reached by email at
Learn more by visiting the Granite Insurance website:
https://graniteinsurance.com/adventure-and-entertainment-insurance/river-outfitter-insurance/
