While casinos today are not major buyers of Cyber Liability insurance, a recent move by the Obama administration could result in a jackpot of new submissions for carriers offering this coverage.
At the tail end of 2011, just before Christmas weekend, the Department of Justice issued a 13-page legal opinion that allows states to authorize Web-based, non-sports gambling within their borders—effectively making intrastate online gambling legal, a decision that could generate billions of dollars of additional gaming revenue.
“No insurance products have been created yet, but this will change 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 outside of the United States.
“Poker is maybe 24 months away from gaining online regulation,” Mitilier forecasts, adding that risk managers whose organizations decide to begin dealing in online gambling had better examine their Cyber coverage—whether, for starters, it even exists; or if it does, if it’s strong enough to protect them in this new environment.
In short, Mitilier predicts, with sensitive personal data and billions 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, the perils they face, for the most part, are fairly ordinary.
“Hospitality and gaming are primitive liability exposures, with individual slips-and-falls accounting for the greatest number of incidents,” says Jacques Arragon, director of risk management for Penn National Gaming, which owns 26 casinos and one dog track in 19 states.
Often, Arragon’s work boils down to differentiating true injuries from false claims. Using surveillance cameras, it’s not uncommon for him to catch patrons practicing falls on casino property.
Insurance brokers and gaming-and-hospitality risk directors look for policies to account for such standard exposures as Property, General Liability, Liquor Liability, Commercial Auto Liability and Workers’ Comp, integrated with Umbrella coverage for expensive one-off incidents.
“The more serious liabilities are liquor-related or auto-related,” says Kurt Meister, vice president of hospitality and gaming at National Specialty Underwriters (NSU), a wholesale brokerage with a hospitality focus. “We also tend to deal with more suicides than a standard hotel.”
Risk managers also must take into account liability for valets who may damage a high-end car or injure people while driving; and they must make sure liabilities for spas, pools and fitness centers are covered.
If there aren’t an undue number of severe claims at casinos, the frequency of incidents is a thorn in the side of the industry. According to brokers and risk managers, a great number of smaller claims add up to a large pot of losses.
“People come after [casinos and their insurers] because we are perceived as having deep pockets,” says Meister. But it frequently doesn’t take much to make these nuisance claims go away—compensation in the form of dinner, entertainment and amenity vouchers are often enough.
Other important coverage areas revolve around the hotels that are often attached to the gaming operations.
“Insurance for a high-rise building is already high, but more so for a hotel,” Meister explains—noting the life-threatening dangers of a nighttime fire, which set hotels apart from other commercial-property types.
Liquor exposure is highest in casinos without adjoining hotels, although varying state laws influence how hard the casino can get hit. Atlantic City casinos pay out often for alcohol-related incidents, says Meister, while Nevada’s laws make it difficult to sue for overserving.
Meister advises his clients to take on high liability limits or readjust their Self-Insured Retention (SIR) rates. One of his clients has already moved its SIRs from $250,000 to $500,000 per account period, he says.
“God forbid a person was drinking at your bar, got in their car to go home and ended up flipping over a bus on the highway. This in itself is a need for large liability limits, let alone housing your business 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 now feature multi-entertainment venues, such as restaurants, concert halls and even amusement-park rides, which carry their own set of risks.
And special “racino” entities, or thoroughbred tracks with casinos attached, require carriers to offer coverage for horse legal liability, track liability, and coverage for jockey and horse accidents.
Additional operational challenges are faced by locations providing transportation to guests, according to Willis Group.
For casino restaurants, food-safety concerns center around the norovirus or stomach flu—an outbreak of which requires a cleanup by industrial hygienists.
GAMBLING-LOSS LIABILITY: LACKS APPEAL
Of all the risks faced by casinos, the most dangerous might be a high-roller on a lucky streak. But gaming operators don’t see this as a risk they are inclined to insure.
Willis, for example, researched risk appetite for a smoothing product that would buffer losses from large wins. “If a big player wins $8 million before the end of a quarter, it certainly has an impact on earnings reports,” says John Bullock, president of Willis of Mississippi.
“However, research showed that there wasn’t much appetite by casino operators; they felt they had the resources and capabilities to assume the risk without transferring it to an insurance policy,” Bullock adds.
Other carriers do offer prize-indemnification programs as protections against supersized jackpots, says Marsh’s Mitilier.
Payout triggers and underwriting specifications for slot machines are calculated with the help of Probability Accounting Reports, which compute the odds of a customer win based on the number of plays over a period of time.
THE PRICING PICTURE
According to Marsh’s latest Hospitality and Gaming Insurance report, the end of 2011 brought rate pressure to catastrophe- and loss-prone casino companies—and this year, all hospitality ventures should begin to see prices more directly in line with their potential losses and exposures.
“From a pricing and rate trend, casinos are seeing what any other business is experiencing right now,” says Willis’ Bullock, who points out that property rates in almost all classes of business and locations are rising as a result of the combined impact of last year’s devastating losses and the revisions embedded in the RMS Version 11 catastrophe model.
Property rates for commercial-gaming establishments in catastrophe-prone zones—such as the Gulf Coast—are seeing increases ranging from 10-30 percent, says Mitilier.
“Catastrophe markets worldwide are becoming more restrictive; that’s causing underwriters in this sector to write to a higher standard based on casino building codes with more attention to detail and more of a focus on detail in valuations,” says Aon Managing Director Craig Bowlus.
To address the creeping costs of Property insurance, brokers will work with lenders to hold a Maximum Foreseeable Loss Study with the goal of lowering insurance limits.
Marsh predicts casino-property insurers will continue protecting their portfolio strength by decreasing insurance capacity and readjusting rates for insureds with high losses or low premiums.
General Liability, Liquor, Auto, Workers’ Comp and Umbrella policies, Marsh says in its Hospitality and Gaming report, have been flat to down 5 percent between Q4 2010 and Q4 2011 at renewal for clients with an average or good risk profile.
National Specialty Underwriters says that in 2012, the gaming insurance marketplace is seeing typical increases of 10-15 percent at renewal, even for companies that had not reported large losses last year.