While casinos today are not majorbuyers of Cyber Liability insurance, a recent move by the Obamaadministration could result in a jackpot of new submissions forcarriers offering this coverage.

At the tail end of 2011, just before Christmas weekend, theDepartment of Justice issued a 13-page legal opinion that allowsstates to authorize Web-based, non-sports gambling within theirborders—effectively making intrastate online gambling legal, adecision that could generate billions of dollars of additionalgaming revenue.

“No insurance products have been created yet, but this willchange the landscape of the gaming industry,” says Jared Mitilier,Marsh's national gaming practice leader—who notes that as much as$70 billion dollars is currently being bet online annually outsideof the United States.

“Poker is maybe 24 months away from gaining online regulation,”Mitilier forecasts, adding that risk managers whose organizationsdecide to begin dealing in online gambling had better examine theirCyber coverage—whether, for starters, it even exists; or if itdoes, if it's strong enough to protect them in this newenvironment.

In short, Mitilier predicts, with sensitive personal data andbillions of dollars in wins and losses at stake in online gaming,“Cyber Liability is going to explode” in the casino sector.

EXCITING INDUSTRY, MANY (MUNDANE) RISKS

While casinos might seem like an especially risky business, theperils they face, for the most part, are fairly ordinary.

“Hospitality and gaming are primitive liability exposures, withindividual slips-and-falls accounting for the greatest number ofincidents,” says Jacques Arragon, director of risk management forPenn National Gaming, which owns 26 casinos and one dog track in 19states.

Often, Arragon's work boils down to differentiating trueinjuries from false claims. Using surveillance cameras, it's notuncommon for him to catch patrons practicing falls on casinoproperty.

Insurance brokers and gaming-and-hospitality risk directors lookfor policies to account for such standard exposures as Property,General Liability, Liquor Liability, Commercial Auto Liability andWorkers' Comp, integrated with Umbrella coverage for expensiveone-off incidents.

“The more serious liabilities are liquor-related orauto-related,” says Kurt Meister, vice president of hospitality andgaming at National Specialty Underwriters (NSU), a wholesalebrokerage with a hospitality focus. “We also tend to deal with moresuicides than a standard hotel.”

Risk managers also must take into account liability for valetswho may damage a high-end car or injure people while driving; andthey must make sure liabilities for spas, pools and fitness centersare covered.

If there aren't an undue number of severe claims at casinos, thefrequency of incidents is a thorn in the side of the industry.According to brokers and risk managers, a great number of smallerclaims add up to a large pot of losses.  

“People come after [casinos and their insurers] because we areperceived as having deep pockets,” says Meister. But it frequentlydoesn't take much to make these nuisance claims goaway—compensation in the form of dinner, entertainment and amenityvouchers are often enough.

Other important coverage areas revolve aroundthe hotels that are often attached to the gaming operations.

“Insurance for a high-rise building is already high, but more sofor a hotel,” Meister explains—noting the life-threatening dangersof a nighttime fire, which set hotels apart from othercommercial-property types.

Liquor exposure is highest incasinos without adjoining hotels, although varying state lawsinfluence how hard the casino can get hit. Atlantic City casinospay out often for alcohol-related incidents, says Meister, whileNevada's laws make it difficult to sue for overserving.

Meister advises his clients to take on high liability limits orreadjust their Self-Insured Retention (SIR) rates. One of hisclients has already moved its SIRs from $250,000 to $500,000 peraccount period, he says.

“God forbid a person was drinking at your bar, got in their carto go home and ended up flipping over a bus on the highway. This initself is a need for large liability limits, let alone housing yourbusiness in a high-rise building,” says Meister.

Apart from encouraging patrons to gamble against the house,drink free booze and stay under their roofs, many casinos also nowfeature multi-entertainment venues, such as restaurants, concerthalls and even amusement-park rides, which carry their own set ofrisks.

And special “racino” entities, or thoroughbred tracks withcasinos attached, require carriers to offer coverage for horselegal liability, track liability, and coverage for jockey and horseaccidents.

Additional operational challenges are faced by locationsproviding transportation to guests, according to Willis Group.

For casino restaurants, food-safety concerns center around thenorovirus or stomach flu—an outbreak of which requires a cleanup byindustrial hygienists.

GAMBLING-LOSS LIABILITY: LACKS APPEAL

Of all the risks faced by casinos, the most dangerous might be ahigh-roller on a lucky streak. But gaming operators don't see thisas a risk they are inclined to insure.

Willis, for example, researched risk appetite for a smoothingproduct that would buffer losses from large wins. “If a big playerwins $8 million before the end of a quarter, it certainly has animpact on earnings reports,” says John Bullock, president of Willisof Mississippi.

“However, research showed that there wasn't much appetite bycasino operators; they felt they had the resources and capabilitiesto assume the risk without transferring it to an insurance policy,”Bullock adds.

Other carriers do offer prize-indemnification programs asprotections against supersized jackpots, says Marsh's Mitilier.

Payout triggers and underwriting specifications for slotmachines are calculated with the help of Probability AccountingReports, which compute the odds of a customer win based on thenumber of plays over a period of time.

THE PRICING PICTURE

According to Marsh's latest Hospitality and Gaming Insurancereport, the end of 2011 brought rate pressure to catastrophe- andloss-prone casino companies—and this year, all hospitality venturesshould begin to see prices more directly in line with theirpotential losses and exposures.

“From a pricing and rate trend, casinos areseeing what any other business is experiencing right now,” saysWillis' Bullock, who points out that property rates in almost allclasses of business and locations are rising as a result of thecombined impact of last year's devastating losses and the revisionsembedded in the RMS Version 11 catastrophe model.

Property rates for commercial-gaming establishments incatastrophe-prone zones—such as the Gulf Coast—are seeing increasesranging from 10-30 percent, says Mitilier. 

“Catastrophe markets worldwide are becoming more restrictive;that's causing underwriters in this sector to write to a higherstandard based on casino building codes with more attention todetail and more of a focus on detail in valuations,” says AonManaging Director Craig Bowlus.

To address the creeping costs of Property insurance, brokerswill work with lenders to hold a Maximum Foreseeable Loss Studywith the goal of lowering insurance limits.

Marsh predicts casino-property insurers will continue protectingtheir portfolio strength by decreasing insurance capacity andreadjusting rates for insureds with high losses or lowpremiums.

General Liability, Liquor, Auto, Workers' Comp and Umbrellapolicies, Marsh says in its Hospitality and Gaming report, havebeen flat to down 5 percent between Q4 2010 and Q4 2011 at renewalfor clients with an average or good risk profile.

National Specialty Underwriters says that in 2012, the gaminginsurance marketplace is seeing typical increases of 10-15 percentat renewal, even for companies that had not reported large losseslast year.