The past year has been a tough road for the hospitality industry. The COVID pandemic has hit this sector especially hard, particularly in places like Florida, New York, and California. Here in Miami-Dade County alone, it’s estimated that hotels and restaurants lost more than $3.3 billion in sales between March and August 2020. And tens of thousands of jobs have been lost.
Pouring Fuel on The Fire
The hospitality industry has always been considered high risk for insurers. But prior to 2019, there was a long period of soft market conditions, with businesses enjoying a choice of coverage options and carriers, less strict underwriting, and lower premiums. Then the market began to harden in 2019 as insurance companies tried to recoup some of their catastrophic losses from 2017 and 2018. Fewer insurance carriers were willing to insure hotels and restaurants, and the hospitality businesses started to have a harder time finding insurance coverage.
Then came COVID.
It was like dousing an already burning fire with gasoline. What was once an increasingly tough situation for hospitality businesses became a serious struggle to find affordable coverage or, in some cases, any coverage at all.
The New Hard Reality
Almost overnight, much of the insurance market has hardened. Many insurance carriers have cut back significantly on the capacity they’re willing to provide, while many are pulling out of the hospitality industry altogether.
For hospitality businesses, it all adds up to fewer options and higher premiums. According to Business Insurance, the Council of Insurance Agents & Brokers reports that commercial lines increased an average of 9.3 percent in the first quarter of 2020 and 10.8 percent in the second quarter. Few lines of coverage have been spared:
- Property increased a total of 27 percent over three quarters.
- General Liability increased 13.6 percent in total over three quarters.
- Umbrella coverage increased 29.1 percent in total over three quarters.
- Workers’ compensation insurance rates, which had been declining for five years before the pandemic, increased 0.7 percent.
- Employment Practices Liability claims and lawsuits are on the rise, and rates are following. According to Insurance Journal, the annual survey of the EPLI market known as The Betterley Report (published by Betterley Risk Consultants Inc.) found that rates continue to trend upward. Of the 20 carriers surveyed, 15 reported rate increases from 5 to 35 percent.
- Cyber attacks on the hospitality industry are exploding, and according to Business Insurance, policyholders can expect 20 to 50 percent rate increases for cyber coverage throughout 2021.
- Business Interruption is a contentious issue right now, with devastated hospitality businesses looking to their insurance policies for compensation for their significant business interruption losses due to the pandemic. Insurers are now extremely reluctant to write commercial policies with BI coverage, especially for hospitality businesses, and rates are expected to continue rising through 2021.
Strategic Partnerships Are Key
The hospitality industry is dealing with a double-edged sword with rate increases on top of significantly reduced sales. Now more than ever, you need strategic partnerships to survive and thrive:
- Work with your insurance agent on your changing insurance needs. Be transparent and collaborative.
- Talk to an attorney before making any COVID-related employment decisions to protect yourself from potential employment liability lawsuits.
- Follow safety guidelines from your state, your industry, and the CDC.
- Start the insurance renewal process months in advance. The underwriting process has slowed dramatically due to underwriters working from home, on-site risk assessments being canceled, and in-person meetings being replaced with video conferences.
Most experts agree it will likely take two or three years to get the hospitality industry back to some kind of normal. So it’s crucial to work closely with your insurance carrier and other business partners to chart your best course of action going forward.
Wilson, Washburn & Forster is a boutique independent insurance agency that has been in business since 1961. We have expertise and connections in the hospitality sector and can also help customize the right mix of coverage to protect against the unique exposures of your business. You will find that our experience, claims handling, service, and community commitment is unrivaled.
Contact us today at 786-454-8384 for a complimentary analysis of your current insurance program by an insurance specialist in this field.