Risk management in the hospitality industry
The hospitality industry is unlike any other when it comes to buying cover for the risks that could diminish the bottom line of your venture or even put you out of business.
In what other industry do you need to consider the potential impact of a shark attack on our coastline, for example, or a hotel guest coming down with food poisoning?
There are many external factors that can (and do) have severe consequences for the entire industry. Recently Tourism Minister Derek Hanekom said on 702 Talk Radio that tourism numbers are down by 40% year on year in certain markets following the introduction of the new visa regulations. Last year, we witnessed the impact of the Ebola epidemic on tourism in South Africa. Xenophobic attacks, crime, slow economic growth and load shedding are other aspects which have a potentially negative effect.
“Most of these factors are beyond the control of hospitality business owners. But given their potentially devastating impact on any business, it is imperative that any business owner have access to a specialist insurance company that understands the needs of the industry within this unique environment,” says Juan Coetzee, managing director of Hospitality and Leisure (H&L), a division of Santam that specialises in insurance underwriting for the hospitality industry.
Coetzee says it is crucial to ensure businesses are adequately protected against any risk related to the running of their hospitality business. “There is a range of insurance products that can be customised to match their specific business needs and help reduce the associated risks to ensure the longevity of your business.”
The minimum insurance protection any hospitality business should consider relates to:
- Tangible business assets and property (cover for fire damage or theft of the business owners’ or their guests’ property, for example)
- Legal liability (protecting any business against third party claims, such as for an injury sustained by a guest)
- Business interruption (protecting any business from financial loss should they suffer a set-back following a loss).
“Even with the best risk management policies in place, however, one can never foresee all the types of claims that could occur. Also, the hospitality industry is diverse and vast, which means that different business owners are exposed to different forms of risk. It is therefore vital to have access to an intermediary or broker with specialist hospitality industry experience to tailor an insurance solution that aligns with the business’ risk profile,” says Coetzee.
The intermediary should conduct a thorough needs analysis of the business before recommending a customised plan. It is imperative that the broker takes the business owner through the most important part of the insurance policy – that which is not covered. Policy documents typically only list the exclusions in the fine print, and it is vital that a business owner understands exactly what they are covered for.
Besides the basic policy, there are a number of additional cover options the business owner could consider, depending on the nature of the business. Questions to could ask the broker include:
- If it is a franchise restaurant and the premises burn down, the insurance policy should cover repair costs. But will it also assist the owner in paying the contractual franchise fees during the period of refurbishment?
- Changes in urban zoning ordinances and bylaws have resulted in some restaurants losing their liquor licences. Will the insurer cover the business against losses of this nature?
- If a customer had to cancel a booking in certain circumstances (for example, after a shark attack in the waters of your seaside resort), is the business covered for the cancellation and the return of the deposit?
- If it is a small bed and breakfast establishment, would the owner be able to insure their private and business property under the same policy?
- With guests coming and going, the guest house or hotel may not always be locked during the day. Does the policy extend the theft cover beyond forcible and violent entry?
- Should the business be affected by load shedding, will the insurer protect the premises against power surges? And will it provide business interruption cover resulting from losses due to load shedding?
“These are all issues hospitality business owners may not think of when considering short-term insurance, but which could have potentially devastating consequences if they are not included in an insurance policy. Working with a suitably qualified intermediary with specialist expertise will ensure your policy is drawn up in such a way as to avoid common pitfalls, and to ultimately offer the best protection possible for any business, their clients, their assets and most importantly, their reputation,” Coetzee concludes.