HOBBIES—HAZARDS AND OPPORTUNITIES

(May 2020)

An applicant’s or insured’s hobbies or interests may have some significant underwriting implications as well as represent additional, profitable sales opportunities.

Hobby Definition

The Merriam Webster Dictionary defines hobby as “a pursuit or interest engaged in for relaxation.”

When a person finds an activity of particular interest, he or she often invests a lot of time and money in order to enjoy it. There is absolutely no limit to the types of activities that can become hobbies. Remember, the only qualification is that some person chooses to pursue the activity for recreation.

Related Court Case: Are Hobbies Sometimes Considered A Business?

Hobby Characteristics

While a hobby can be created out of any activity, it’s more likely that a person will be attracted to an activity in which others share a similar interest. This is an important characteristic of hobbies. As more and more hobbies become common, the likelihood increases that a person applying for homeowner coverage pursues a particular hobby. There is then a greater chance that an underwriter or agent should be closely investigating the existence of a hobbyist.

Hobbyists tend to be either collectors or activists. Of course, there may often be an overlap, but there is a distinction. Collector – A collector is more likely to be concerned with gathering property with a characteristic in which he or she has an intense interest. Examples include people who collect stamps, art, coins, autos, antiques (which is a world of its own), comic books, baskets, dishes, glassware, sports memorabilia, etc. The key is that the COLLECTION of the class of property is the primary goal of this type of hobbyist.

Activist – The “activist” (this writer’s term) is a person who may also collect a certain type of property, but that fact is secondary to acquiring property that is related to a special activity. Examples are hunters, musicians, painters, sculptors, cyclists, and enthusiasts of many types such as fans of model or radio control planes, helicopters, etc. Activists often have an interest in special pieces of property, such as a guitarist who also owns a guitar used originally by Chuck Berry. However, their investment in special property has much more to do with acquiring property that, including extra parts, facilitates their interest.

Example: Four years ago, Greg turned away from his old interest in video games. He discovered the world of ham radios. Besides finding a quaint and challenging way to communicate with other folks around the world, Greg also had to develop another interest. Since ham radios are not nearly as popular, they used to be, it became very tough to repair and maintain his unit. To protect his hobby and reduce possible downtime, Greg started to collect spare radios and parts. Now he has an extensive inventory of radio parts.

With collectors, the focus should be placed on the nature of the property being acquired. With activists, besides attention to the property exposure, there should be equal emphasis on the liability exposure that is inherent in their activity.

Underwriting Concerns

Seeking more information from applicants and insureds on their hobbies can be quite important. While a typical personal property and liability policy is broad and flexible enough to handle a variety of needs, certain hobbies or hobbyist activities can create a special concern. An underwriter or agent should make sure that they have enough information to be comfortable about providing coverage for the individual and that the insurance meets their coverage needs. In order to reach this goal, one needs to be familiar with the particulars surrounding a hobby and answer questions in several areas:

· Is there any concentration of valuable property?

· Are there any property dangers associated with the hobby?

- does the hobby involve chemicals, fuels or other materials that could significantly increase a home’s fire load

- does the hobby involve special equipment or processes

- does the hobby involve modifications to a residence or special appurtenant structures

- is the property frequently moved or transported

· Are there any liability dangers associated with the hobby?

- frequent travel to sites or meets

- frequent visitors to home that are related to the hobby

Example: Jane Deepdiver rushes home from work and changes into a set of old clothes. She spends an hour walking around her neighborhood. She salvages used popsicle sticks. Jane enjoys cleaning and drying them. Later she sprays paints them in different colors for fun. That activity is a hobby for Jane.

The hobby illustrated in the above example involves a situation that has a pretty low impact on insurance coverage, on both a property and a liability basis. But that is not always the case.

Example: Rob Raylway has a hobby of building model railroads. A huge layout is in a large pole barn. Each year he hosts a very large meeting of other RR model enthusiasts and he has hundreds of people visit his home to see the model every year.

Unlike Jane’s situation, Rob’s hobby creates a significant underwriting concern due to the additional property and liability exposures.

· Applicant or insured publishing online hobbyist newsletters or rendering advice that may create a liability?

· Has hobby crossed the line into a business activity, such as persons selling and trading property on or away from an insured location?

Example: Vera is a huge enthusiast of medieval fairs. She regularly attends ones held within a three-state area of where she lives. Vera is also a home brewer. She brews her own recipe for mead which she makes, bottles and trades with various fair attendees. In this case, should someone become ill from consuming her home brewed mead, Vera could face a serious claim.

In the above instance, Vera may have coverage under a residential insurance policy. But it would depend on details involving the home brewing activity and trade details.

Opportunities

While an insurance professional must be concerned with any increased or special hazards that may be related to a hobby, it is also important to be alert to any possible business opportunity.

1. Goodwill

Even if no increased premium dollars are at stake, additional goodwill may be created if the agent or underwriter can provide simple loss control advice to hobbyists. Many persons are receptive to advice on making their home and activities safer and this could result in improving retention or creating future sales opportunities.

2. Schedule property or special policy

If the hobby involves property that is subject to limited coverage (or is excluded) under a basic policy, an opportunity now exists to find adequate coverage. This may arise from scheduling the property, increasing coverage limits or writing a separate policy. This can create a stream of revenue as additional property is acquired.

3. Increased liability exposure

The same situation exists for a hobby that impacts the applicant’s or insured’s exposure to liability losses. There may be a real need to increase liability limits or to purchase umbrella coverage. The general assumption is that home visitors typically consist of a modest level of visits by friends, relatives, neighbors and businesspersons handling home maintenance issues. In a routine instance, the residential liability protection is designed to handle this modest exposure of non-business visitors. Businesspeople typically have their own commercial coverage to take care of their loss or injury while at a customer’s premises. However, certain hobbies can substantially increase the flow of home visitors and this increase directly affects the chances that related losses may occur.

4. Hobby, No, Business, Yes

You may ask enough questions to discover that an activity isn’t a hobby. Agents must try to find out if any insured receives compensation for his or her efforts. Note, we just said “compensation.” A person can receive something other than cash that can be considered to be an equivalent of income.

Example: Bev Bartercraze regularly uses an iron to add appliqués and other creative, decorative touches to the clothing for several of her neighbors. Rather than receive cash, she has made the following arrangements:

· Neighbor one provides music lessons to her three children

· Neighbor two handles lawn mowing, raking and yard work

· Neighbor three provides housecleaning.

If Bev had to pay someone for these valuable services, it would cost up to several thousand dollars a year. Though no cash changes hands, Bev is certainly being heavily and regularly compensated. Her activity, even though it is closely associated with owning and running a home, is definitely a business exposure and, if a loss involved that activity, it may cause a coverage problem.

Example: One day, after Bev Bartercraze finished decorating a new batch of neighbor one’s clothing, that neighbor’s young daughter came over to pick up the items. Bev told her to go to her hobby room and pick them up. Bev went to her kitchen to start dinner. A minute later, Bev heard a loud crash and some shrieking. She ran to the hobby room and found the ironing board and extremely hot iron had toppled onto the neighbor's daughter. The young lady suffered a broken wrist and severe burns to her face, neck and left shoulder. Because she came into the home as a result of Bev's barter arrangement, the injuries may not be covered. Bev's policy has a business exclusion that is based on receiving any significant form of compensation.

Related Court Case: “Business Property Sublimit Held Applicable in Fire Loss” - illustrates the difficulty in determining whether an activity is a hobby or a business.

Get Serious About Hobbies and Activities

Insurance professionals may need to spend more time considering the possible opportunities and potential consequences related to how applicants and insureds spend their leisure time; it may be worthwhile to ask more questions concerning a family’s recreational interests. It may also be a good idea to survey insureds about their activities. A survey could be a valuable method to discovering more information about customer coverage needs. A survey wouldn't have to be detailed, but it should ask for enough information to determine if a follow-up is necessary.

Home Based Business Considerations

ISO Homeowners Exposure Analysis Checklist