Things have been somewhat up and down for clients in the hospitality industry in the last few years but PwC has reported a positive outlook for 2017 to 2021. Despite safety and security concerns, global economic factors and changing visa regulations, international visitor numbers to South Africa have recovered significantly from a 6,8% decrease in 2015 to a 12,8% increase in 2016. Domestic tourism is also an important source of revenue and employment, contributing 52% of total tourism consumption. A labour-intensive sector, with a supply chain that links across sectors, the hospitality industry is regarded as a modern-day engine of growth, contributing 3,3% to the real GDP growth in 2016.
For clients in this sector, things are certainly looking up. However to protect their investment and livelihood, it’s important to share with them some of the pitfalls in running a hospitality business and the minimum hospitality insurance protection they should consider.
Preparing for unforeseen incidents
There are many types of incidents a hospitality business can encounter. These include loss of income due to fire, theft, cybercrime, public and third-party liability, business interruption and natural catastrophes.
A recent example is that of a restaurant’s kitchen that was ruined by fire, forcing the business to close its doors. No income was received during the repair period, but overheads such as rent, electricity, water, salaries and payments to suppliers remained due at the end of each month. An incident like this has the potential to ruin a business. Fortunately for the restaurant owner, the loss of income and business-related expenses were covered under the business interruption extension of his policy.
Review the business interruption component of your client’s commercial insurance to ensure that they are properly covered and suggest professional liability insurance if they don’t yet have it.
Cyber threats are on the rise
Cybercrime is another real and serious threat. According to SHA Specialist Underwriters, a wholly owned subsidiary of Santam, 38,5% of businesses surveyed by them have been hit by cybercrime over the past 12 months. This statistic suggests that a South African businesses are now far more likely to fall victim to cybercrime than to a more ‘conventional’ crime, like robbery or theft.
There are numerous types of cybercrime that a hospitality business can be vulnerable to. Ransomware attacks involve encrypting all the data on a company’s hard drives and servers, and demanding a ransom in exchange for returning the data. Another type is hacking, where a business’s website or networks could be shut down or misused. In a business reliant on bookings and collecting personal and credit card information, this could be disastrous. Imagine how disruptive it must be not knowing how many bookings have been taken or when clients are booked? A business in this situation could face serious reputational damage as clients will be quick to spread the word on the service they received.
SHA’s cover is designed to cover the ‘lifespan’ of an attack. It negates the losses of a business in terms of reputation by covered fees for a public relations service, getting a network up and running by offering access to highly skilled IT professionals, and covering the financial losses that the business has experienced.
As a stand-alone policy or top-up on an existing policy, cyber insurance cover is a strong pre-emptive strike to ensure a business is less vulnerable in this area.
The minimum insurance protection to get
It is important to also protect against general liabilities that come with the territory of hospitality. One of the most critical areas of public liability involves food poisoning, therefore it’s crucial to cover the risk of incidents such as a client getting sick while in your establishment.
In addition to comprehensive cover, the minimum insurance protection any hospitality business should consider relates to:
- All property, such as contents, equipment, improvements, electronic data processing equipment, outdoor property and stock;
- Business interruption, to protect against financial loss should the business be faced with a setback following a loss, and
- Machinery breakdown, to cover the repairs or replacement of business machinery following a breakdown of or material damage to the unit.
The hospitality industry is diverse, which means that business owners in this industry are exposed to different forms of risk. It is therefore important to understand the unique exposures a client might face, customise insurance solutions to match the client’s needs, and put risk mitigation plans in place to protect the client’s assets, reputation and livelihood.
The most important part of any policy is not what is covered, but what is excluded. This is where the advice of an expert intermediary becomes critical. As someone with specialist knowledge of this industry, an intermediary can help policyholders review the exclusions to their policy in the fine print as well as update their insurance regularly. This is one of the simplest ways to mitigate risk and to protect their venture against potentially devastating financial losses.
If you’d like to know more about insurance tailored to the hospitality industry, speak to your relationship manager or contact Santam. For more advice tailored to intermediaries, visit our blog where you will find more useful articles, such as how business interruption insurance can help a business get back on its feet after an unforeseen event.