Understanding Insurance and Its Impact on Your Hospitality Business

Guest Blog

The hospitality industry is a dynamic and ever-evolving sector, facing a unique set of challenges and opportunities. In recent years, the industry has been impacted by various factors, including economic uncertainty, natural disasters, and cyber threats. These factors have contributed to an increase in insurance premiums and a tightening of underwriting guidelines, making it more difficult for hospitality businesses to obtain and maintain adequate coverage.

Key Factors Affecting Hospitality Insurance
There are several key factors that are affecting hospitality insurance in 2023 and 2024, including:

• Insurance market turmoil: There continues to be a tightening of appetite are becoming more and more selective in who they offer terms to if at all. The cost of insurance is up and many carriers are restricting no longer offering components of covage
• Natural disasters: Natural disasters are becoming more frequent and severe, and this is having a major impact on insurance rates. In 2022, there were 18 U.S. weather/climate disaster events with losses exceeding $1 billion each. These events are causing significant losses for insurance companies, and this is leading to increased premiums for hospitality businesses.
• Cyberattacks: Cyberattacks are a growing threat to businesses of all sizes, and the hospitality industry is no exception. In 2023, the Kroll IR Spotlight Trends Report identified the retail/restaurant sector as the most impacted industry sector. Email Compromise and Web Compromise were the top threat incident types. Threats against the retail/restaurant sector most often involved CVE / Exploit as the initial access method.
• Higher claims costs: Higher claims costs from escalating verdicts and rapidly evolving environmental, social, and governmental (ESG) conditions are affecting individuals and businesses.
• Underinsurance: Appraisal analysis showed that nearly 90% of buildings appraised in 2020 and 2021 were undervalued. As a result, were underinsured 68% of buildings were underinsured by 25% or more and 19% by 100%.

In addition to the general challenges facing the hospitality industry, there are also some specific insurance issues that businesses in this sector need to be aware of:

• Property insurance: Property insurance is becoming increasingly difficult to obtain and expensive for hospitality businesses. This is due to the heightened risk of property damage from natural disasters, such as hurricanes, floods, and wildfires. These events can cause significant damage to buildings, equipment, and inventory, leading to substantial financial losses for hospitality businesses.
• Liquor liability insurance: Liquor liability insurance is also becoming more expensive for hospitality businesses due to the increased risk of lawsuits from patrons who are injured after consuming alcohol. This risk is particularly prevalent in establishments that serve alcohol and have a lively atmosphere. Incidents involving intoxicated patrons can lead to costly lawsuits, making it crucial for hospitality businesses to have adequate liquor liability coverage.
• Cybersecurity insurance: Cybersecurity insurance is becoming increasingly important for hospitality businesses as they are increasingly targeted by cyberattacks. These attacks can compromise sensitive customer data, disrupt business operations, and damage the reputation of the establishment. Cybersecurity insurance can help businesses recover from the financial and reputational damage caused by cyberattacks.

By understanding and addressing these specific insurance issues, hospitality businesses can better protect themselves from potential risks and ensure their long-term success.
 
Key takeaways for hospitality businesses:

• Start working with your broker early: Start working with your broker 90 to 120 days prior to your renewal date. This will give them time to shop around for the best rates and coverage options for you.
• Communicate your property improvements: Communicate the most recent property improvements and your 1–3-year maintenance/improvement plan. This will help your broker to understand your risk profile and get you the best possible rates.
• Know your replacement cost: KNOW what it will cost to replace your current operation rather that what you think it will cost (or what it cost 3 to 5 years ago). This will help you to avoid being underinsured in the event of a loss.
• Differentiate yourself: Differentiate yourself as best in class with a good story and make sure your social media presence matches the story. This will help you to attract and retain insurance carriers.

Recommendations for Building Resilience in 2023 & 2024
In order to build resilience in 2023 and 2024, hospitality businesses should take the following steps:

• Fully understand and manage your risk profile. This involves understanding the specific risks that you face and taking steps to mitigate those risks.
• Pick a specialty broker. One who specializes in understanding your business AND your industry. Help them tell your story who you are, what makes you different and why insurance carrier should partner with you.
• Build an engaged, productive workforce. This involves investing in training and development for your employees and creating a positive work environment.
• Learn more at GetHIP.biz!

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This guest blog was submitted by Risk Strategies Fournier Group. For more information on guest blog opportunities, contact Marla McColly, Business Development Director, Oregon Restaurant & Lodging Association.