Checking-in on hospitality coverage

As an agent or broker serving the hospitality market, you’ve enjoyed many coverage options at lower premiums in the last few years. In fact, you’re probably still delivering good news to your clients about premiums. But that news will be short-lived if your insurance partners lack both a long-term commitment to the industry and a focus on risk management.

Consider the overall insurance market. It remains soft with price competition flattening in most commercial lines, and after the past two years of rate reductions, the already depressed rates have nowhere to go but up. Of course, if history serves us, this pending upward trend may be delayed through 2007, especially as it relates to the hospitality industry — restaurants, bars, hotels and resorts.

In addition, as price competition flattens, we can expect to see carriers instead competing with new coverages, higher limits and lower deductibles — anything that can help them differentiate themselves in what is a very competitive hospitality market.

During this soft market, we have seen the important — and familiar — trend of new competitors jumping into hospitality lines in an effort to try to capture quick market share and capitalize on the perceived profitable underwriting. These newcomers have been under-pricing business to meet their short-term premium goals and should be the first to exit the market as they see their actual underwriting results.

So how do you navigate this increased competition to make sure you are placing your clients’ business in the right programs with the right carriers and the right coverages?

A diverse industry
First, remember that hospitality is a very broad definition and includes many different classes of business. These include the small restaurants, bars and taverns that dot most local street corners, as well as lodging risks like bed and breakfasts, inns and motels, to name a few. These types of hospitality risks have historically been hard to place because of issues such as inexperienced ownership, poor financial planning and liquor liability.

On the other hand, fine dining and larger hospitality risks do not have placement issues, especially in today’s market. These include large and upscale restaurants and hotels, and resorts with a more complex mix of exposures. For hotels and resorts, coverage and capacity remain strong despite the 2005 hurricane activity. But we are seeing a tightening of property and wind capacity in coastal states, especially in the Southeast.

The important point is that each of these hospitality risks is unique and demands its own coverages and risk management services.

Coverages: Finding the right combination
With such diverse hospitality risks, you need the right combination of coverage and services that relate to the specific exposures of your hospitality client. While it is impossible to review coverage requirements of each type of risk in one article, you should remember to review your risk’s exposure and ensure it is adequately covered by both the standard forms and/or other special enhancement forms that both increase limits and/or expand coverage.

For example, a hotel program may incorporate several combinations of coverage, risk management programs and value-added services that appeal to the various demographics of hotels, from limited service to full-service/resorts. Coverage enhancements to fit hotel needs should focus on guest property, special event cancellation for events such as conventions and golf tournaments, golf course extensions, professional liability coverage, employment practices liability, pollution, garage-keepers legal liability and valet parking.

Restaurant risks, on the other hand, may be more heavily focused in providing specialized coverages and or increased limits in the area of foodborne contamination, food spoilage, systems breakdown, fine arts, wine valuation, valet parking, employee dishonesty, money and securities and increased fire legal liability limits.

Stability and expertise
To make sure your hospitality risk is adequately covered by the necessary forms and special enhancements, and to ensure long-term success, look for a partner that has expertise in hospitality underwriting. Whether you’re using a program manager or working directly with a carrier, find out how long they have been in the industry, whether they have exited the industry during hard markets, and how much business they write.

Along with expertise, look for stability. In other words, look for a carrier that has a long-term commitment to the industry. These are carriers that are less reactive to pricing and more focused on risk management and long-term relationships. This focus can ensure the long-term financial health of a risk and help it maintain coverage when the market hardens.

Short-term competitors that lack industry expertise and a commitment to the industry have a tendency to stop writing business once the market hardens. Then you will be left scrambling to find a new market for your client.

Finally, make sure carriers are A.M. Best “A” rated, with the financial strength to provide stable, consistent and competitive pricing. And chose programs that have multiple “A” rated carriers, enhancing your ability to provide one-stop shopping that meets the diverse needs of the hospitality industry.

Risk management
It’s important for you to look beyond placing business for the lowest premium. In a soft market, there can be a tendency to put less emphasis on risk management because premiums are so low. But risk management should never be ignored, especially if you want to secure long-term insurability for your hospitality client. Many of the larger hotels and resorts have their own experienced risk management staff, but smaller risks will be looking to you to guide them.

Restaurants have significant property exposures that should be addressed. These include kitchen-related fires, crime exposure with employee theft if cash receipts are high, on-premise liability from spoiled food and also from interaction between the serving staff and the customer.

Workers’ compensation exposure also is high, resulting from slips and falls, cuts, burns and lifting accidents.

With hotels/resorts, there are multiple property exposures and the potential for the severity of losses is greater. Crime exposure also exists and includes employee theft, guest property losses, money and securities, and lock box. Inland marine exposure comes from accounts receivables, computers, fine art, antiques and valuable papers (guest records).

Premise liability also is a high concern with hotels/resorts. There are life safety and security concerns, and other potential exposures if the facility has an exercise room, swimming pool, spa and other personal services.

Automobile liability exposure is greater if the hotel/resort utilizes shuttle vans or buses to pick up and deliver guests.

Workers’ compensation exposure is high and includes slips and falls, lifting, chemical exposure for housekeeping/maintenance operations as well as typical kitchen injury exposures.

How do you identify and minimize the risks of these many different exposures? Work with a carrier or program manager that offers specialized state-of-the-art risk management and claims service.

Also look for claims and loss control staff with expertise in the hospitality industry to ensure claims are handled appropriately.

The hospitality industry is diverse and offers many opportunities for agents and brokers. If you want those opportunities to extend beyond the current soft market, choose your partners wisely.

Susan Kearney (, CPCU, ARM, AAI, is hospitality practice leader for Venture Programs, which provides brokers with risk management and insurance for larger hospitality risks (