Key Card Clubs and Liability Issues

At one time the front desk was the key entry point at every fitness center. Now, an increasing number of clubs enable members to gain 24-hour access to the facilities with an electronic card that has basically done away with the front desk.

A few franchised companies lead this key card club movement, but some traditional clubs also are converting to the concept.

Initial liability concerns over the lack of staffing made it difficult for owners to find insurance coverage for the facilities, but that is slowly changing as the number of key card clubs grows.

“This [key card clubs] is a trend that isn't going away,” says Ken Reining, president of Association Insurance Group of Denver, CO. “There was a time as recently as last year that we wouldn't insure them. We have looked hard at this class of business, and we are going to take a shot at it.”

Part of this change in thinking stems from the claim track record of existing key clubs.

“We have had our clubs open for 13 years, the last eight of them as a key club, and we have never had a claim. That is better than some fully staffed clubs we compete with,” says Craig Annis, president of Vision Fitness, a three-club company based in Portsmouth, NH. “We are not unique as a business. There are plenty of businesses that people use everyday that are not staffed. We are just a little different than the industry norm and that confuses the insurance companies. They are just starting to understand our businesses.”

Insurance companies are beginning to come around, says Reining, by examining similar operations in other industries in addition to the companies operating in the fitness business.

“We have looked a lot at the hotel industry, especially locations that operate fitness centers,” he says. “At those facilities, which are protected under the hotel's master policy, there is often no one around, no waivers, etc. There hasn't been a high amount of claims in that situation, so it seems that these key card clubs, if run properly, should be a worthwhile risk.”

A leading franchiser with more than 200 locations, Anytime Fitness, says that its franchisees are in a strong position with insurance carriers and are, in fact, setting the baseline for these types of clubs.

“We started franchising in mid-2002, and in the beginning it was easy to get insurance coverage. Then, that kind of became a problem,” says Jeff Klinger, president of the fast-growing company. “We have had a lot of attention from underwriters recently, and they see we are at 220 locations and no claims. They see there are still some risks, but none more than traditional clubs.”

To help minimize these risks, insurance providers — and their underwriters and re-insurers — require key card clubs to install and adhere to certain safety precautions. In fact, Association Insurance Group requires that potential clients meet several underwriting guidelines including that facilities not contain Jacuzzis or pools, install panic systems, be physically located in a low crime area, install digital surveillance systems and more. (For more information see Getting Keyed In? sidebar at the bottom of this page.)

However, even with these safeguards in place, risks still exist when allowing people to work out in an unsupervised facility — enough risk that some insurance companies only reluctantly insure them and still more will not insure them regardless of any instituted safety steps.

“We won't insure them. They may have cameras, panic buttons, etc., but there isn't human coverage of those cameras at all times and still no one on hand that can respond should a member need assistance or an emergency arise,” says Steve Shelton, president of Sport & Fitness Insurance Co. “We've had people die at traditional clubs, but those weren't insurance losses as there were people in the clubs to take appropriate actions. That element is certainly not available at these key card clubs.”

Steep Pricing

Even when finding insurance coverage, operating these 24-hour access facilities comes with a steeper price than traditional facilities.

“There are compliance issues when it comes to ensuring that the safety standards are followed, and franchises tend to have a more successful record of being in compliance with required safety models [than independent key card clubs],” says Reining. “But even so, all of these clubs will expect to pay anywhere from 15 to 25 percent more on liability due to the increased exposure, with independent clubs trending toward the higher end.”

This pricing, though, makes little sense to Annis, especially when he says his company and other independent operators follow as stringent or more stringent measures than franchised operations. In fact, he recently started Key-Club Concepts to provide consulting services that he hopes will ease the process of establishing new, independently owned key clubs throughout the United States and Europe.

“It is worth the extra [cost] as we don't have employee expenses,” says Annis, who pays about $22,000 per year for liability insurance for all three clubs together. The clubs range in size from 7,000 to 10,000 square feet. “Those higher rates are really in response to the insurance companies not knowing the business and not asking the question that would give them the basic research to price it fairly. You would think with eight years and no claims my rates would go down. Instead, they continue to go up. There is a huge level of absurdity with the whole insurance coverage question.”

Statistic on the number of key card clubs in operation aren't available, but as more join the growing number of franchises and others convert or establish new operations, the risks have yet to outweigh the rewards for owners. And a growing number of insurance providers, no matter how reluctantly, are keying into the move toward 24-hour access.

Getting Keyed In?

So you are thinking of starting, converting or buying a key card club? Well, whether it is partially staffed — many have staff on duty during normal hours — or entirely unstaffed, it is important to keep these guidelines in mind when trying to make the club appealing to potential members and insurance agents.

  • Install digital video surveillance equipment and a hard drive. Analog just won't cut it with insurers these days.

  • Get a signed waiver from every member that, at the minimum, lets them know the facility is not staffed at all times and that they assume all risks.

  • Post club rules several times in the facility. Many say it is important to remind members that they are being watched for safety and rule observation.

  • Install panic buttons so members can get emergency assistance if needed.

  • If you have a locker area, remember that these areas cannot be put under surveillance. Many operators, including Anytime Fitness, have gone to individual shower rooms for members' convenience and safety.

  • Even though the club may not be staffed, be prepared to log some hours every day ensuring that everything is in working order and being a human contact point for members.

  • Lock areas that are only for staff — such as the room holding the hard drive — even going to the point of alarming it should unauthorized persons enter.

  • Adequately light the facility and parking area.

  • If you allow personal trainers to use the facility with clients, make sure they are certified and insured themselves.

  • Even if you are not in the club, be available to members for complaints or suggestions. Installing a phone for local access (to phone a friend or family member if they are stopping into the facility at off hours) with your office number on speed dial is one way to provide this access.

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