Hospitality’s Double Whammy
For those of you who have recently gone through a renewal cycle, you most likely experienced a substantial increase in premium, restrictions to coverage terms, and lower available limits. The insurance market had been hardening since early 2019 when insurance carriers sought to return to underwriting profitability following the horrendous “catastrophe” loss years of 2017 and 2018; the worst and third worst respectively in history. Entering 2020, underwriters were working on recapturing premiums to offset those loss years.
The Council of Insurance Agents and Brokers reports the following average percentage increases:
- Property increased 27% in total over 3 quarters
- General Liability increased 13.6% in total over 3 quarters
- Umbrella increased 29.1% in total over 3 quarters
Everything Takes More Time Now
Since the start of the pandemic, the premiums have continued to rise, and there is also a direct impact on the underwriting process. With underwriters and their modelers working from home, the process and flow of renewals have slowed dramatically. On-site risk control visits to provide underwriters with information they need to assess risks have been suspended. Face-to-face meetings and site visits with underwriters have been replaced with video conferences and conference calls. Underwriter referral processes are backlogged. So, it is imperative that the insurance renewal process begins months in advance.
Conservatism is Ruling the Day
The hardening conditions that have accelerated in the second quarter of the year are not intrinsically tied to the pandemic itself but are no doubt a symptom of the natural retrenchment that develops in times of uncertainty.
As mentioned earlier, many insurance carriers are cutting back significantly on the capacity they will provide. And, unfortunately, many are pulling out of the Hospitality space completely. As you have read in the news, they have been inundated with Business Interruption claims, the majority of which they are denying or reserving their rights. They are fearful that the empty restaurants and nearly empty hotels may generate vandalism losses. They are fearful that the return of guests and employees will bring an entirely new wave of claims.
The last bastion of soft pricing was Workers’ Compensation insurance. That all changed in California when Governor Newsom issued an executive order in the first week of May that Workers’ Compensation benefits will be provided to workers who contract COVID-19 on the job. The presumption is that workers who work outside of their homes contracted the virus while on the job. Other states are beginning to follow suit. Where the first month of the shutdown saw a flurry of COVID-19 related Business Interruption claims being filed, we are now seeing that same flurry of Workers’ Compensation claims being filed. Since the premiums charged did not contemplate paying losses without proof that the illness was contracted in the workplace and since these claims will not be included in experience modification calculations, the Workers’ Compensation insurance market has turned hard overnight.
These premium increases create an undue burden on the Hospitality industry, which is already suffering with significantly reduced sales. Sadly, the reduction of sales and payrolls is not creating a similar decrease in insurance rates and premiums. One bright note is that we have been successful working with our insurance carrier partners to revise premiums in policies midterm to reflect the decrease in sales and payrolls generating return premiums.
A Message From Our Hospitality Team
EPIC has thousands of Hospitality clients across the United States, and very few of them have not been impacted by the shutdown. We are starting to see the light at the end of the tunnel as some states begin to reopen. Our promise to our Hospitality clients is that our 2,700 employees will patronize your restaurants and hotels in our daily lives and when business travel resumes again. We will continue to fight every day to ensure that we help you to control your costs as much as possible while partnering together to mitigate your exposure to loss.
At no time has it been more important for Hospitality companies to partner with an insurance broker that has the domain expertise, in-house loss control and claims advocacy services, technology, and market power to deliver in this changing marketplace.
For more of our coronavirus coverage, visit epicbrokers.com/coronavirus
EPIC Hospitality Team
Successfully managing risk by identifying and controlling potential sources of loss is the most effective strategy to protect and grow your business and to reduce insurance costs. As your advocate and partner in this process, our experienced team of hospitality industry specialists will identify the risks you face and recommend strategies to minimize, mitigate or eliminate them.