Hospitality Coverage Sketchy, Clients Vulnerable
Once considered an extremely desirable class of business, hospitality accounts are now difficult to place and face exorbitant price increases. Available supply has declined as many carriers have exited the marketplace, ceased writing certain classes of business, limited coverages they offer or increased underwriting requirements.
As a result, many financially sound accounts have turned to alternative insurance solutions such as self-insurance, large deductibles and rent-a-captive structures to mitigate their risk. Those with substandard financials are left with few alternatives, including state funds, assigned-risk pools and higher deductibles or guaranteed cost options.
In this environment, there is concern that a growing number of hospitality-related risks are underinsured. Coverages are cut to reduce costs or because of a clients lack of knowledge of changing risks, limits and coverage options.
The responsibility falls to agents and brokers to help their accounts carry out proper risk analysis, secure adequate coverages and limits, and stay committed to claims and loss control.
First, agents and brokers should consider that many coverages are no longer standard and, therefore, need to be reviewed carefully. Last years policy could have changed significantly.
Workers Compensation.
For workers compensation, coverages that are no longer standard include: coverage under the U.S. Longshoremen & Harbor Workers Compensation Act (covering certain maritime workers with benefits set forth in a federal law); employers liability (covering an employer's liability for bodily injury that is not covered by workers' compensation insurance); voluntary compensation (extending workers compensation benefits to employees not covered by the law); foreign voluntary compensation; endemic disease (providing coverage for a disease that is native to a particular foreign country; and waivers of subrogation (in which insureds and insurers give up the right to recover damages from a third party).
Each of these changes may have a significant impact on hospitality risks.
For example, many hotels and resorts have marinas and employees might not be covered when theyre making repairs or when they are out on boats, if U.S. L&H coverage isnt obtained.
Other hospitality risks are international hotels, which may need foreign voluntary compensation or endemic disease coverage to cover situations where U.S. employees are sent overseas to work at foreign operations for a period of time.
Packages.
For package programs, blanket waivers of subrogation for general liability are no longer standard, and sublimits on items such as trees, plants and shrubs are becoming more common. In addition there are increased deductibles for specialized lines such as directors and officers liability and employment practices liability and pollution liability insurance.
Specialty Insurance.
Specialty coverages for the hospitality industry need to be considered, with coverage for foodborne illness at the top of the list.
A food borne illness has the potential to damage not just revenues, but also the reputation of even the best-managed hotel, restaurant or resort.
Other specialty considerations include event cancellation coverage, which is essential in todays uncertain times, and endorsements to cover electronic data processing, especially in hotels where reservations and other systems are all highly computerized.
Terrorism insurance.
Terrorism insurance is an issue for large hotels and restaurants, especially those located in major cities.
Each account needs to determine its overall susceptibility and vulnerability to terrorism, and then find solutions, such as business interruption coverage, that would enable it to offset financial losses and resume normal operations as soon as possible.
Business interruption.
Business interruption insurance is also essential in the event that a fire disaster forces a hotel or restaurant to shut down for an extended period of time. This is one of the most difficult insurance coverages for restaurants and hotels to gauge, especially calculating the extra expenses involved in continuing operations and estimating the duration of an income loss.
When calculating business interruption coverage, it is important that brokers and agents help their accounts plan for the maximum potential loss and for any extra expenses that would be incurred during the recovery phase when they may be operating with temporary facilities.
Since it may take a long time for revenue from special events to return to pre-disaster levels, policies should include coverage extensions, such as an "unlimited extended period of indemnity."
Limits.
With the many variables involved in hospitality property insurance, its important that brokers and agents not assume that current limits are adequate. They need to ensure that all risks are analyzed in order to determine if any specialized coverages are needed or additional limits are required.
Site Inspection, Loss Control.
On-site visits by specialty brokers or loss control experts are a must for a thorough risk analysis, especially at larger hotels and resorts. In addition to standard property concerns–such as roofs, sprinkler systems, kitchens, boilers and machinery–many hotels and resorts have specialized concerns for events such as gaming and outdoor activities.
While some hotels and restaurants have cut back on safety and loss control services to lower their short-term costs, this strategy can result in larger losses and higher long-term premiums. Brokers and agents should emphasize safety and loss control as a way to reduce the number of preventable claims, accidents and injuries, and lower the experience modification level, which is used to determine premiums.
While agents and brokers have little control over the overall insurance environment that is pushing rates up and limits down, they can work with their accounts to control their loss experience. Loss control is especially important with workers' comp, which continues to be a dominant factor in the total cost of risk for the hospitality industry. In addition, loss control and safety efforts should be emphasized for property and product liability exposures, and on emerging issues such as corporate governance and terrorism.
Submissions.
Finally, with the current difficulties in securing property and casualty coverages for hotel and restaurant customers, brokers and agents need to be very thorough on application submissions. Too often submissions are done in a hurry, lacking necessary data such as updated loss information (submissions are usually sent without any loss information or with outdated loss information), supplemental application and financial information.
Brokers and agents need to be thorough on submissions, checking with carriers for submission requirements and making sure to include all required information in original submissions. Many carrier Web sites have this information available along with forms and specific supplemental applications.
Susan Kearney, CPCU, ARM, AAI, (skearney@ventureprograms.com), is national accounts underwriting manager at Venture Programs which designs, underwrites and distributes specialty industry-focused insurance packages (www.ventureprograms.com).
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 3, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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