The rapid advance of technology, changing guest habits, and trends like the sharing economy are driving major changes in the hospitality industry. The impact? Hospitality companies must adapt by thinking outside traditional business practices and models. In turn, new risks must be considered as these companies evolve their operations in an effort to attract and retain customers.

Today's consumers have high expectations — especially when it comes to services accessed through their mobile devices. It's no different in the hospitality industry. Guests expect to be able to book and manage stays, order room service, access Wi-Fi, and even lock and unlock their rooms. And high consumer expectations go beyond technology. As trips for business increasingly mix with trips for leisure — a phenomenon known as “bleisure” — customers expect amenities, quality, and customer service to match this blended experience. Finally, use of sharing-economy hospitality services is growing. Travelers appreciate the ease, convenience, and price of these types of experiences. In fact, 25% and 23% of leisure and business travelers, respectively, are predicted to use Airbnb in 2017.

In response to these challenges, hospitality companies are investing resources to understand and adjust to travelers' quickly evolving expectations—and as a result are assuming new and unfamiliar risks. It's critical for hospitality companies to not only identify and analyze what these new risks are, but to partner with the right insurance brokers and carriers to help manage and transfer these risks effectively.

Expanding the experience; minimizing risk

For many hotels and lodging companies, staying relevant means adding amenities beyond exercise rooms, pools, and restaurants. They are exploring higher-risk offerings such as horseback riding, rock climbing, and parasailing. Since these services are often outside the core competencies of hoteliers, many turn to third-party vendors for the necessary expertise and to transfer risk. This is where hospitality businesses can make their first and perhaps most critical mistake: not ensuring the appropriate protective contracts are in place.

“The benefit of going to a third party is that, at least in theory, the business has vetted them and is hiring a knowledgeable firm with professional expertise,” says Marc Orloff, general manager, National Insurance Casualty, Liberty Mutual Insurance. “The overall experience can be better managed and safer for the guest and the resort.”

He adds, “But in many instances, hotels outsource these services and contractual liability becomes the biggest risk.” Hotels must keep four key points in mind when drafting and reviewing contracts: “First, have an effective contract in place to put liability where it belongs,” says Orloff. “Second, when you do have the correct contracts in place, know your partner's underlying insurance limits — and what kind of risk and financial condition they're in. Third, contracts are legal documents and involving qualified legal counsel is critical. Finally, establishing contracts is not a one-time event, so it's important to effectively manage that process.”

Orloff says many of the smaller event management groups that hotels can hire as third-party vendors only carry insurance with a $1 million combined single limit, “and to be honest, that just doesn't go very far today, especially with some of the injuries and related claims that result from higher-risk amenities.”

Hospitality businesses must also gain a full understanding of the new exposures they face from the activities they offer, and the appropriate insurance coverage to transfer some of that risk. In addition to conducting regular safety reviews and updating crisis management plans, hospitality businesses should work with their legal experts to review and update policies and procedures; help address security concerns; and develop waivers, medical clearance forms, and other documentation to reduce liability in case of customer injuries from more physically demanding activities.

Businesses should also review insurance coverages such as general liability, umbrella, and workers' compensation, to make sure they have adequate protection that accounts for the additional risks. The $1 million standard a hotel previously carried will most likely not be enough, especially if the hotel chooses to manage new services directly rather than using a third-party vendor.

Hospitality operations must also familiarize themselves with municipal or state laws that might govern the new activities they offer. For example, in Florida, a 2014 law mandates minimum liability insurance limits for parasailing operations.

Providing more technology solutions, not problems

Today, new services enable guests to manage their hotel stay end-to-end through their smartphones, from booking to check-out. While these services resolve customer complaints about waiting in lines to collect keys and allow customers to control when and how often they interact with hotel staff, they can open hospitality businesses to increased cyber risk.

Online booking, shared Wi-Fi, and central reservations offer consolidated repositories of customer information that could be exposed in the event of a cyber-attack. Digital locks could also be compromised in ways customers may not contemplate.

Ultimately, while customers demand new technology solutions, those demands come with high expectations regarding security and privacy. If hospitality businesses cannot effectively meet those expectations with a degree of safety, their customers will likely hold them accountable.

Hotels should take practical cybersecurity steps as they roll out new technologies, such as restricting access to sensitive data, training staff, partnering with cybersecurity firms to stay on top of the latest threat intelligence, and buying or reviewing cyber insurance policies to transfer risk in the event of a breach.

Competing in the new reality

Because the hospitality industry is quickly evolving its business practices to adapt to new competitors and changing guest expectations, it's understandable that the new risks may not be a top-of-mind consideration. “We can talk about all the risk, but at end of day, they're running businesses and trying to grow profitably,” says Orloff. “If a hotel chain decides to add several new amenities and services at once to compete, it will do so.”

When introducing amenities, technologies, or other services, hospitality businesses should also make sure they do not disregard other safety practices already in place, such as conducting employee background checks (if legally permissible), having staff confirm identification before granting room access, and installing security safeguards such as video surveillance and extra lighting.

In this new reality, perhaps the most important decision for a hospitality business to make is who to partner with to evaluate and manage the new risks it may not be thinking about. As Orloff states, businesses need to “partner up with a proactive insurance carrier that understands the needs of this industry and brings effective risk control, claims expertise, and product solutions to the table to help mitigate these risks.” The right carrier partner should have expertise not just in traditional hospitality coverages, but also in areas like cybersecurity where businesses have new and growing exposures.

The hospitality industry is evolving fast to stay relevant, and needs to make strategic choices on how to compete. With the right insurance partners that help plan for and manage risk, responding to market needs can grow hospitality businesses, not hold them back.

To learn more about Liberty Mutual's commercial insurance coverages and services, visit https://business.libertymutualgroup.com.

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