Hospitality Risk

Hard Lines: How to Secure Cover for Catastrophes When Carriers Retreat

Hospitality was one of the first industries to bear the brunt of premium hikes and coverage limitations from insurance carriers after 2017's hurricane season.
By: | October 3, 2018 • 6 min read

When hurricanes Harvey, Irma and Maria (HIM) ripped through the Caribbean and Gulf Coast last year, hospitality groups bore much of the damage as hotels, golf courses and leisure sites in tourist hotspots were devastated. A year later, many are yet to return to business as normal.


Having already paid billions in claims and facing an indeterminate bill for ongoing business interruption, the insurance market unsurprisingly cooled on hospitality companies with coastal exposures, forcing risk managers in the sector to work closely with their brokers to secure the necessary coverage at a reasonable price.

Jim Gaubert, senior vice president at JLT Specialty USA, said hospitality businesses with losses saw rates hiked by 40 percent with restrictions implemented on hurricane coverage. And according to Christian Ryan, Marsh’s US hospitality, sports and entertainment leader, property premiums as much as doubled in the worst hit lower Caribbean markets.

“Capacity largely remained but insureds felt the effects of having to pay more for the same terms and conditions,” said Gaubert, adding that a typical rate rise was between 10 and 15 per cent, while deductibles on hurricane risk in the Houston area rose in some instances from two per cent to as high as five per cent.

Jim Gaubert
Senior Vice President
JLT Specialty USA

“Many boutique and specialized coverages that had made it into programs before 2017 were removed by underwriters in 2018. And outdoor property, wind and flood, tees and greens coverage were sub-limited more severely,” he said.

According to Gaubert, several US insurers including Liberty Mutual stopped underwriting single hotels, preferring more diversified group portfolios.

“Swiss Re remodelled its risks to a higher standard and cut back wind and flood capacity. And some Lloyds syndicates either stopped writing their direct and facultative books of business or re-aligned their hospitality capacity,” he added.

While no insurers walked away from hospitality completely, most that were writing sizeable lines scaled back considerably. “A big carrier may have offered $25 million of coverage before, but only $5 million today,” noted Ryan.

This pullback has forced brokers to earn their salt by shopping the market and restructuring programs. Where a hotel group’s property program might have included four or five markets on a quota share basis before, that same program many now have ten or more insurers sharing the risk.

Layered programs can create competition among participating insurers, helping to keep costs down. Conversely, buying in a group rather than individually can also generate economies of scale. However, many companies could not avoid having their property insurance budgets for 2018 blown.

“This is pretty significant given that property typically accounts for around 70 percent of a hotel in a cat-prone area’s cost of risk,” said Ryan.

And with insured losses from Florence still unconfirmed – albeit likely to be less severe than first feared – insurers may yet have further rate rises up their sleeve.

“If the US excess and surplus market were to start to withdraw, the hospitality industry could move from a firming market to an all out hard market,” Gaubert warned.

Communication and Collaboration

In light of these developments, hospitality firms have had to reevaluate both their risk management processes and their approach to buying insurance. “Insureds have re-modeled their programs and begun to buy limits in a more judicious manner based on modeling results,” said Gaubert, adding: “Information and owning your modelling is king.”


Insurers are now taking a much more detailed look at hospitality groups’ secondary risk characteristics before writing coverage and increasingly require evidence of how lessons learned from last year’s losses are being applied to mitigate potential future losses.

“Risk managers should know their risks inside out and be able to communicate their strengths and weaknesses to the market,” said RIMS vice president Gloria Brosius, director of risk management and insurance for Pinnacle Agriculture Distribution, advising risk managers to work with their brokers to expand on the underwriting data they currently provide to insurers as much as possible.

“Give insurers more information than they could possibly need,” she said.

“Anything that sets you aside from the other insureds works in your favor. The more data you provide, the better off you will be, no matter what the market looks like.”

With business interruption a key concern, insurers also want to see robust business continuity plans setting out how hoteliers plan to secure and repair their properties and attract tourists back as quickly as possible. “These plans must be driven from the top and implemented all the way through the organization, from the CEO to housekeeper,” said Ryan.

Give insurers more information than they could possibly need.– Gloria Brosius, director of risk management and insurance for Pinnacle Agriculture Distribution

He has observed an uptick in collaboration between hotel groups since HIM, with lessons and best practices being shared across the industry. Tourists are, after all, more likely to return to an affected area if they feel the whole location is back on its feet rather than just one or two hotels.

However, he added that some tourist boards and municipalities could do more to work with hotel groups to get tourists back to affected areas. “They have to work together to send a positive message: “We’re back open for business”. If no-one shows up there is no income.”

No income means escalating business interruption claims. And these costs ultimately get passed on to the sector as a whole in the form of insurance rate hikes. Maintaining strong external relationships with the insurance market is therefore essential.

Brosius advised risk managers to develop “trusting and transparent” relationships with their brokers, and to make the effort to regularly visit underwriters in both soft and hard markets – even if they are based overseas.

Christian Ryan
Sports, Hospitality and Entertainment Leader

“This increases the likelihood of receiving good service when losses hit.”

Ryan believes US and Caribbean hospitality firms’ approach has already “improved exponentially” since HIM. However, he noted: “Other sectors are lagging behind because they haven’t experienced such severe losses. If you get punched in a boxing ring you put your hands up the second time.”

Indeed, the lessons of collaboration, continuity planning and the sharing of detailed risk information apply to risk managers in every sector – not just hospitality – and should be applied proactively regardless of market conditions, Brosius said.

“Preparing in a good market serves you well for when rates harden,” she advised.

“Last year it was hurricanes and fires but every industry is at some point subjected to an unusually high degree of loss, whether that be auto liability, property or another type of loss.”

The Parametric Cash-flow Fix

Many hospitality groups carry significant debt on their books. With restrictive debt covenance requirements limiting their ability to be particularly creative with deductibles, limits and retentions, an increasing number are exploring parametric insurance policies which pay out a pre-agreed sum upon pre-determined triggers being met (such as wind speed or rainfall).


“Parametric products have tremendous applicability in the hospitality sector as there is such a need for up-front cash in the wake of a disaster,” said Ryan, who noted that working with loss adjusters to establish the scope and value of a loss after a catastrophe can be time consuming.

“Your bills won’t stop and employees need to be paid to ensure they come back to work, so parametric cover can act as an initial funding mechanism to cover these costs.”

At present, parametric products are unlikely to offer high enough limits to provide a full insurance solution for most hospitality groups. However, they could be very effective when used in combination with traditional insurance. Gaubert is seeing, for example, an increasing number of firms using paremetrics as deductible buy-downs to manage their exposures having recently been forced to take higher deductibles

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]

Risk Scenario

A Recall Nightmare: Food Product Contamination Kills Three Unborn Children

A failure to purchase product contamination insurance results in a crushing blow, not just in dollars but in lives.
By: | October 15, 2018 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.


Reilly Sheehan, the Bethlehem, Pa., plant manager for Shamrock Foods, looks up in annoyance when he hears a tap on his office window.

Reilly has nothing against him, but seeing the face of his assistant plant operator Peter Soto right then is just a case of bad timing.

Sheehan, whose company manufactures ice cream treats for convenience stores and ice cream trucks, just got through digesting an email from his CFO, pushing for more cost cutting, when Soto knocked.

Sheehan gestures impatiently, and Soto steps in with a degree of caution.

“What?” Sheehan says.

“I’m not sure how much of an issue this will be, but I just got some safety reports back and we got a positive swipe for Listeria in one of the Market Streetside refrigeration units.”



Sheehan gestures again, and Soto shuts the office door.

“How much of a positive?” Sheehan says more quietly.

Soto shrugs.

“I mean it’s not a big hit and that’s the only place we saw it, so, hard to know what to make of it.”

Sheehan looks out to the production floor, more as a way to focus his thoughts than for any other reason.

Sheehan is jammed. It’s April, the time of year when Shamrock begins to ramp up production for the summer season. Shamrock, which operates three plants in the Middle Atlantic, is holding its own at around $240 million in annual sales.

But the pressure is building on Sheehan. In previous cost-cutting measures, Shamrock cut risk management and safety staff.

Now there is this email from the CFO and a possible safety issue. Not much time to think; too much going on.

Sheehan takes just another moment to deliberate: It’s not a heavy hit, and Shamrock hasn’t had a product recall in more than 15 years.

“Okay, thanks for letting me know,” Sheehan says to Soto.

“Do another swipe next week and tell me what you pick up. I bet you twenty bucks there’s nothing in the product. That swipe was nowhere near the production line.”

Soto departs, closing the office door gingerly.

Then Sheehan lingers over his keyboard. He waits. So much pressure; what to do?

“Very well then,” he says to himself, and gets to work crafting an email.

His subject line to the chief risk officer and the company vice president: “Possible safety issue: Positive test for Listeria in one of the refrigeration units.”

That night, Sheehan can’t sleep. Part of Shamrock’s cost-cutting meant that Sheehan has responsibility for environmental, health and safety in addition to his operations responsibilities.

Every possible thing that could bring harmful bacteria into the plant runs through his mind.

Trucks carrying raw eggs, milk and sugar into the plant. The hoses used to shoot the main ingredients into Shamrock’s metal storage vats. On and on it goes…

In his mind’s eye, Sheehan can picture the inside of a refrigeration unit. Ice cream is chilled, never really frozen. He can almost feel the dank chill. Salmonella and Listeria love that kind of environment.

Sheehan tosses and turns. Then another thought occurs to him. He recalls a conversation, just one question at a meeting really, when one of the departed risk management staff brought up the issue of contaminated product insurance.

Sheehan’s memory is hazy, stress shortened, but he can’t remember it being mentioned again. He pushes his memory again, but nothing.

“I don’t need this,” he says to himself through clenched teeth. He punches up his pillow in an effort to find a path to sleep.


“Toot toot, tuuuuurrrrreeeeeeeeettt!”

The whistles of the three lifeguards at the Bradford Community Pool in Allentown, Pa., go off in unison, two staccato notes, then a dip in pitch, then ratcheting back up together.

For Cheryl Brick, 34, the mother of two and six-months pregnant with a third, that signal for the kids to clear the pool for the adult swim is just part of a typical summer day. Right on cue, her son Henry, 8, and his sister Siobhan, 5, come running back to where she’s set up the family pool camp.

Henry, wet and shivering and reaching for a towel, eyes that big bag.

“Mom, can I?”

And Cheryl knows exactly where he’s going.

“Yes. But this time, can you please bring your mother a mint-chip ice cream bar along with whatever you get for you and Siobhan?”

Henry grabs the money, drops his towel and tears off; Siobhan drops hers just as quickly, not wanting to be left behind.


“Wait for me!” Siobhan yells as Henry sprints for the ice cream truck parked just outside of the pool entrance.

It’s the dead of night, 3 am, two weeks later when Cheryl, slumbering deeply beside her husband Danny, is pulled from her rest by the sound of Siobhan crying in their bedroom doorway.

“Mom, dad!” says Henry, who is standing, pale and stricken, in the hallway behind Siobhan.

“What?” says Danny, sitting up in bed, but Cheryl’s pregnancy sharpened sense of smell knows the answer.

Siobhan, wailing and shivering, has soiled her pajamas, the victim of a severe case of diarrhea.

“I just barfed is what,” says Henry, who has to turn and run right back to the bathroom.

Cheryl steps out of bed to help Siobhan, but the room spins as she does so.

“Oh God,” she says, feeling the impact of her own attack of nausea.

A quick, grim cleanup and the entire family is off to a walk-up urgent care center.

A bolt of fear runs through Cheryl as the nurse gives her the horrible news.

“Listeriosis,” says the nurse. Sickening for children and adults but potentially fatal for the weak, especially the unborn.

And very sadly, Cheryl loses her third child. Two other mothers in the Middle Atlantic suffer the same fate and dozens more are sickened.

Product recall notices from state regulators and the FDA go out immediately.

Ice cream bars and sandwiches disappear from store coolers and vending machines on corporate campuses. The tinkly sound of “Pop Goes the Weasel” emanating from mobile ice cream vendor trucks falls silent.

Notices of intent to sue hit every link in the supply chain, from dairy cooperatives in New York State to the corporate offices of grocery store chains in Atlanta, Philadelphia and Baltimore.

The three major contract manufacturers that make ice cream bars distributed in the eight states where residents were sickened are shut down, pending a further investigation.

FDA inspectors eventually tie the outbreak to Shamrock.

Evidence exists that a good faith effort was underway internally to determine if any of Shamrock’s products were contaminated. Shamrock had still not produced a positive hit on any of its products when the summer tragedy struck. They just weren’t looking in the right place.


Banking on rock-solid relationships with its carrier and brokers, Shamrock, through its attorneys, is able to salvage indemnification on its general liability policy that affords it $20 million to defray the business losses of its retail customers.


But that one comment from a risk manager that went unheeded many months ago comes back to haunt the company.

All three of Shamrock’s plants were shuttered from August 2017 until March 2018, until the source of the contamination could be run down and the federal and state inspectors were assured the company put into place the necessary protocols to avoid a repeat of the disaster that killed 3 unborn children and sickened dozens more.

Shamrock carried no contaminated product coverage, which is known as product recall coverage outside of the food business. The production shutdown of all three of its plants cost Shamrock $120 million. As a result of the shutdown, Shamrock also lost customers.

The $20 million payout from Shamrock’s general liability policy is welcome and was well-earned by a good history with its carrier and brokers. Without the backstop of contaminated products insurance, though, Shamrock blew a hole in its bottom line that forces the company to change, perhaps forever, the way it does business.

Management has a gun to its head. Two of Shamrock’s plants, including Bethlehem, are permanently shuttered, as the company shrinks in an effort to stave off bankruptcy.

Reilly Sheehan is among those terminated. In the end, he was the wrong person in the wrong place at the wrong time.

Burdened by the guilt, rational or not, over the fatalities and the horrendous damage to Shamrock’s business. Reilly Sheehan is a broken man. Leaning on the compassion of a cousin, he takes a job as a maintenance worker at the Bethlehem sewage treatment plant.

“Maybe I can keep this place clean,” he mutters to himself one night, as he swabs a sewage overflow with a mop in the early morning hours of a dark, cold February.


Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are their recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

Shamrock Food’s story is not an isolated incident. Contaminations happen, and when they do they can cause a domino effect of loss and disruption for vendors and suppliers. Without Product Recall Insurance, Shamrock sustained large monetary losses, lost customers and ultimately two of their facilities. While the company’s liability coverage helped with the business losses of their retail customers, the lack of Product Recall and Contamination Insurance left them exposed to a litany of risks.

Risk Managers in the Food & Beverage industry should consider Product Recall Insurance because it can protect your company from:

  • Accidental contamination
  • Malicious product tampering
  • Government recall
  • Product extortion
  • Adverse publicity
  • Intentionally impaired ingredients
  • Product refusal
  • First and third party recall costs

Ultimately, choosing the right partner is key. Finding an insurer who offers comprehensive coverage and claims support will be of the utmost importance should disaster strike. Not only is cover needed to provide balance sheet protection for lost revenues, extra expense, cleaning, disposal, storage and replacing the contaminated products, but coverage should go even further in providing the following additional services:

  • Pre-incident risk mitigation advocacy
  • Incident investigation
  • Brand rehabilitation
  • Third party advisory services

A strong contamination insurance program can fill gaps between other P&C lines, but more importantly it can provide needed risk management resources when companies need them most: during a crisis.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]