Hospitality Insurance Market in Turmoil
The hospitality insurance market is experiencing a major shakeup, with fewer insurance companies willing to cover the risks inherent in the industry. This shift has led to soaring premiums, more stringent underwriting practices, and unexpected policy cancellations, leaving many bar and restaurant owners in a difficult position.
One of the primary trends driving this instability is consolidation within the brokerage industry. As award-winning wholesale broker David DeLorenzo, CEO of Ambassador Group Insurance, explains, smaller, specialized brokers are being acquired by larger firms. This consolidation can diminish the personalized service that smaller brokers often provide, leaving businesses with fewer options and less support.
It’s not simply consolidation that’s causing problems, the reality is that many insurance companies have reduced their willingness to underwrite policies for the hospitality industry. Several insurance companies don’t want to work in states like Arizona because ongoing litigation has become a serious concern. DeLorenzo notes, “We’re seeing more lawsuits, and we’re seeing social juries out there awarding these big settlements. That’s making carriers nervous.”
The tightening of underwriting standards has created significant challenges for establishments deemed to have elevated risk profiles. According to DeLorenzo, businesses with features like dance floors, gaming areas, or late-night alcohol service are now viewed as high-risk, resulting in policy denials or exorbitant premiums.
Lease requirements are also contributing to rising insurance costs. Many bars and restaurants are now required to carry substantial umbrella policies, sometimes with multi-million-dollar limits, regardless of individual risk factors.
“They’ll give you a rate, then 30 days later come back and say, ‘We don’t like this about it,’ even though it fit their criteria originally,” DeLorenzo said, referring to the practice of insurers approving policies only to cancel them later. This can force businesses to scramble for coverage at significantly higher rates, sometimes increasing premiums by 30-40%.
Risk Management as a Solution
Given these escalating challenges, DeLorenzo emphasizes the importance of proactive risk management for hospitality businesses. This includes implementing strict loss control measures, investing in staff training, and addressing potential risks before they escalate into claims.
He advises clients to consider higher deductibles to offset rising premiums since property claims aren’t as prevalent in certain areas.
Negotiation, particularly with landlords, is another key tactic, especially when lease requirements are excessive or poorly understood.
Technology and the Future
Despite the current difficulties, DeLorenzo is optimistic about the long-term impact of technology. He believes that camera technology, and other tools, will provide insurers with more than just a piece of paper when an incident occurs.
He expects these solutions to help insurers reduce loss ratios, and ultimately, re-enter the market with competitive rates. DeLorenzo, who has 25 years specializing in hospitality insurance, remains committed to working towards market stabilization.
“Insurance shouldn’t just be a pot of money for attorneys,” he said. “It should be about real protection for businesses that are doing the right things.”
