Party rental operators look forward to buoyant business in 2003, with 45 percent of respondents to an exclusive Special Events Magazine survey predicting revenue increases of at least 10 percent or more over last year. But to reach those heights, they need to break free from some deadly drags on their businesses, including economic uncertainty and hefty hikes in insurance costs.
Party rental operators are even more confident about better business in 2003 than the special event industry taken as a whole. As reported in our January issue, 56 percent of professionals throughout the industry — including planners, caterers, rental operators and others — predict that they will handle more events in 2003 than in 2002. But that number zooms to 70 percent for the party rental segment itself. (See graphs, page 36.)
In the face of their high hopes, rental operators are grappling with hard challenges, and perhaps none so galling as the skyrocketing cost of insurance. On average, the price tag on premiums has gone up anywhere from 20 percent to 100 percent in virtually all lines over the last year, according to Bruce Moses, partner in South Pasadena, Calif.-Based agency Shaw, Moses, Mendenhall & Associates. And some operators have taken even harder hits.
“To say our insurance costs have increased is a gross understatement,” says George Coates, owner and president of Stuart, Fla.-based Eventmakers International. “Our property insurance increased 110 percent, general liability increased 120 percent, inland marine increased 264 percent, auto increased 7 percent, and workers' comp increased 43 percent.”
“Our workers' compensation premium has gone up 800 percent in the last five years,” notes Hong Wong, accounting supervisor with Salmon's Rentals Ltd. of Burnaby, British Columbia. “We were reclassified to a category that includes scaffolding,” considered a greater risk.
Behind the price hikes is the insurance industry's own crisis. The value of insurance companies' investments has taken a tumble along with the stock market. The tragedies of 9/11 walloped the reinsurance industry, which is still running at a 114 percent to 116 percent loss ratio, explains Jim Browning, owner of the Browning Agency in Ponte Vedra Beach, Fla.
Certain regions have their own insurance woes. For example, the state of California did away with its minimum rate rule for workers' compensation coverage in 1995, leading carriers to lowball premiums in the effort to pick up market share even as health-care costs continued to rise. As the cost of claims outstripped reserves, carriers have either fled the state or folded.
As a result, insurers must be more careful when underwriting accounts, and must hike premiums and cut coverage to stay afloat.
While some rental companies are absorbing higher insurance costs, others are passing them along.
Employees at Edison, N.J.-based Miller's Rental & Sales are contributing to their health-plan coverage to make up the shortfall, according to owner Steve Kohn, while Dan Hooks, president of Charlotte, N.C.-based Party Reflections, is looking at increasing both delivery charges and equipment rental fees to cover his higher auto and general liability premiums.
“We now have to charge our customers for adding ‘additional insureds’ to our policy for being hired by them to do the job,” says Christopher Starr, president of Starr Tents, with outlets in Bridgehampton and Mount Vernon, N.Y. “Some of the sites we work at set higher limits for insurance than we would normally cover. The insurance companies are eliminating riders to policies to increase per-job limits, forcing us to carry excess liability limits and the extra costs.”
“We were very close to having to stop renting some of our inflatables because the insurance carrier would not cover them,” notes Mary Stubbs, co-owner of Tupelo, Miss.-based Busylad Inc. “We also had that same carrier refuse to underwrite the fence portion of our business. We were very fortunate to have another carrier interested in writing our total business, even though it was with a 35 percent increase in premium.”
Operators are responding to the high cost of insurance in a number of ways, including shopping for new carriers, increasing deductibles and reconsidering coverage levels.
“We are self-insured for medical, but have seen costs rise 15 percent each of the last two years,” notes Mike Borchelt, chief financial officer of Houston-based Stellar Event & Presentation Services. “We are aggressively managing the plan terms and employee withholding rates to control this.”
The tight insurance market requires party rental operators to run a tight ship.
Stellar has developed an “intense” focus on safety, Borchelt says. “We have had a safety consultant in each of our operations over the last year. We have implemented formal safety programs, which include pre-event safety meetings by our staff on large events, monthly safety audits of facilities, and regular claims reviews with each location's managers.” The result has been a “significant improvement” in workers' compensation and auto liability claims rates that he predicts will bring premiums down at some point, “But for next year, we are still at the higher average claims, which will have a negative impact.”
“Prevention is the key to success,” Starr says, “I want zero claims so I can have some leverage with my agent.”
Besides taking extra care with obvious risks such as tents and trucks, it's time to pay attention to smaller items such as dance floors and chairs, Browning urges. Also, file claims with care: “If the insured has several small claims, the underwriter will sense that management is not watching things as well as it should,” he cautions. And don't forget to mail the check: “You're not high on the renewal list when your payment is delinquent,” Moses warns.
IT'S A CYCLE
Although it's cold comfort to the operator paying the bills, insurance rates are “not that much different now than they were in the mid-'80s,” notes Charles Neffle, CERP, owner of All Occasions Event Rental in Cincinnati and American Rental Association chairman. “When we look at cyclical rates in our [ARA insurance] subsidiary, they have been flat or trending down for as long as 12 years in some areas.”
“We've not had a hard insurance market in 18 years,” Browning notes. “It's cyclical. As soon as the carriers recover from the large losses and the investment return comes back, the cycle is that rates will go downward.”
ARA, 800/334-2177; Browning Agency, 904/285-3430; Shaw, Moses, Mendenhall & Associates, 626/799-7813
RENTAL: READY TO PARTY HEARTY
Party Rental's Predictions for 2003
BETTING ON BIG BUSINESS
How will the number of special events you handle in 2003 compare with 2002?
We will handle more in 2003 70%
We will handle fewer in 2003 3%
We will handle approximately the same 18%
WHO'S HOSTING THE PARTY?
How will your event revenue change (increase or decrease) over the next 12 months from business events and from social/private events?
Revenues will go up 20% and more
From business events 21%
From social/private events 21%
Revenues will go up 10% to 19%
From business events 25%
From social/private events 24%
Revenues will go up 5% to 9%
From business events 8%
From social/private events 7%
Revenues will go up 1% to 4%
From business events 3%
From social/private events 4%
From business events 16%
From social/private events 16%
Revenues will go down 5% or more
From business events 5%
From social/private events 2%
Business events 22%
Social/private events 27%
What steps are you taking to adapt to the event rental marketplace in 2003?
We are adding new inventory 80%
We are increasing marketing efforts 80%
We are pursing new clients 74%
We are adding new services 43%
We are streamlining operations (e.g., reducing staff hours, etc.) 35%
We are raising prices 28%
We are adding new locations 11%
We are cutting prices 6%
Other/no answer 14%
Totals exceed 100% because multiple answers are possible.
SPECIAL EVENT SPOILERS
What are the greatest challenges facing your rental operation in 2003?
An uncertain economy 72%
Increasing costs in the face of pressure to hold down prices 49%
Labor shortage/lack of skilled labor 39%
Increased competition 38%
Shorter lead times 37%
Consolidation of client base 5%
Other/no answer 12%
Totals exceed 100% because multiple answers are possible.
HOW WE DID IT
The Primedia Business Marketing Research Department collected data in October and November 2002. A total of 1,459 Special Events Magazine subscribers categorized as equipment rental/sale were selected on an nth name basis to receive an e-mail invitation directing them to a department Web site where the survey was located. The effective response rate was 22.7 Percent (total respondents numbered 219). Research methods conform to accepted marketing industry standards.