What brokers need to discuss with hospitality clients

Hospitality providers are gradually emerging from a pandemic-era slump that nearly scuppered the industry in 2020 and 2021. The new normal, though, means restaurateurs, venue owners and other businesses likely need to review their insurance coverages and consider some very specific risks.

Plus, they should have an eye on subrogation opportunities and look for ways to transfer risk to third parties, like insurance coverage for companies that provide waitstaff for large events and even vendors that bring in tables and chairs.

“What you want to see is certificates of insurance from those third parties that you’re hiring, showing adequate coverage,” says Michael Boynton, a vice president in NFP’s Business Insurance division. “Typically, if you’re looking at the liability coverage, then that certificate of insurance has to match.”

In these cases, the contract is between the hospitality provider and whoever they’re hiring as a third party. “You [need to] make sure [that] contractual risk transfer is taking place and that can be shown through a certificate of insurance,” he tells Canadian Underwriter.

“Or [that] an underwriter did check the box and say, ‘Okay, they had this [coverage], so this [risk] transfers. We’re not the last domino to fall here if a lawsuit comes.’”

For the hospitality industry overall, the 2023 Q4 average premium renewal rate increase was 7.73%, down from the third quarter 2023 average of 8.11%, according to the latest commercial premium rate index from Applied.

“The Q4 2023 average premium renewal rate change was down compared to the same quarter last year, which was 9.08%,” the report added.


Fresh worries

A growing area of concern for hospitality businesses is (re)insurance capacity, particularly for operations located in areas exposed to natural catastrophes.

“Flood- and fire-prone areas may limit insurers’ ability to maintain the adequate business interruption coverage to their needs,” Boynton says.

For many hospitality businesses, the biggest NatCat and general loss risks stem from water. Beyond flooding risks tied to waterside locations, restaurants and event venues face water infiltration worries from a range of causes – anything from storm activity to burst pipes.

“Water damage sub-limits are common. Depending on property risks your coverage can be limited,” he says. “For example, clients in multi-level buildings may have a larger exposure to water damage [from] floors above them.”

Ideally, brokers should work with both clients and their landlords and educate them on the advantages of technologies like water sensor alarms, which can mitigate damage to a property or business operation. Such tools are especially important in urban areas, Boynton says, because taller buildings with more floors increase the overall risk.

“The more people you have above [the space] you occupy [creates] a higher exposure. It can be just with the amount of water that can trickle down if a sprinkler goes off. The water sensor technology can shut off the water in a situation, or at least the alarm can notify [the client] to be able to shut off the water in a situation – a burst pipe or overflowing toilet,” he adds.

“The hospitality industry does have a lot of water damage claims. We…see all the construction and occupation protection and exposure information that goes into putting together an underwriting file. It all has to be taken into consideration.”


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