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.

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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.”

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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
Marsh

“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).

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“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]

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]