Hospitality Insurance: A Market in Turmoil
The hospitality industry is grappling with a severe crisis in insurance coverage. Business owners in the hospitality sector are facing a perfect storm of challenges, including soaring premiums, stricter underwriting standards, and unexpected policy cancellations. These issues stem from a confluence of factors, including consolidation within the insurance market and increased litigation.
One of the most prominent trends is consolidation within the industry. Niche brokers are being acquired by larger brokerage firms, a shift that is impacting the personalized service small businesses relied on. David DeLorenzo, CEO of Ambassador Group Insurance, an award-winning wholesale broker, points out how these changes affect bar and restaurant owners. “Smaller brokers, who have specialized in hospitality insurance for years, are retiring, and when they’re gone, a lot of the personalized service goes with them,” he said.
Why the Hospitality Industry is Struggling
Several factors are significantly contributing to this challenging landscape.
- Reduced Appetite: Many insurers are retreating from the hospitality sector. This is particularly evident in states like Arizona, where litigation has become a significant concern.
- Rising Litigation: Increasing lawsuit filings and substantial settlement awards are causing insurers to become nervous about the hospitality market. DeLorenzo notes, “We’re seeing more lawsuits, and we’re seeing social juries out there awarding these big settlements,”
- Tightened Underwriting: Insurers are imposing stringent underwriting standards. Establishments deemed high-risk, even with minor characteristics, face major hurdles.
- Lease Requirements: Lease agreements frequently mandate that businesses carry substantial umbrella policies, which can drive up insurance costs.
DeLorenzo shared concrete examples of how establishments are impacted, stating that establishments with dance floors, games, or those serving late-night drinks are viewed as high risk. He also noted that some underwriters will approve policies initially but then cancel them weeks later.
Risk Management as a Solution
DeLorenzo firmly believes effective risk management is essential for hospitality business owners. He suggests several strategies to mitigate risks and maintain affordable insurance.
- Loss Control: Implement strict measures to prevent claims.
- Staff Training: Invest in comprehensive training for staff members to reduce potential loss incidents.
- Proactive Risk Assessment: Address potential risks before they escalate into claims.
- Higher Deductibles: Consider higher deductibles on property insurance to offset rising premiums and focus resources on liability coverage.
- Negotiation: Engage in negotiations with landlords who set high insurance requirements.
DeLorenzo emphasizes the importance of demonstrating to underwriters that a business is a good risk. “The best thing hospitality owners can do is show underwriters they’re a good risk.”
Technological Advancements
DeLorenzo is optimistic about the potential for technology to improve the hospitality insurance landscape. Technological tools, such as camera technology, can assist in documenting real-time incidents. By documenting these incidents and verifying that there is a certain reduction in loss ratios, more carriers may be motivated to re-enter the market with competitive rates.
“Insurance shouldn’t just be a pot of money for attorneys,” DeLorenzo said. “It should be about real protection for businesses that are doing the right things.”
