From altercations between patrons to overserving alcohol, bars and restaurants face a number of risks that could lead to costly liability claims. To learn more about the risks and insurance solutions in the hospitality industry, Crain’s Content Studio spoke with Connor Farquharson, Manager, Commercial Insurance, Burns & Wilcox, Dallas/Ft. Worth, Texas.
What are some of the greatest risks in the hospitality industry today?
C.F.: The erosion of insurance coverage coupled with the increasing price of insurance is probably the biggest risk in the hospitality industry. Additional coverages are decreasing; for example, you may see lower limits or exclusions on assault and battery, firearm exclusions, or defense inside of the limits. They are getting less in terms of coverage because it just has not been profitable for the insurance carriers. Assault and battery is something that does happen at bars, unfortunately, and these claims can be very expensive. If a policy has those exclusions, then the owners are the ones left holding the bag. New ventures starting up may also have a hard time finding coverage, as they do not have the experience and that makes it very difficult on the carriers.
What should business owners be aware of relative to these risks?
C.F.: They should be aware of the exclusions and stipulations that are on their policy and the sublimits on the policy. Every insured and broker should be looking through these policies very carefully to see what is excluded and what is intended to be covered. Business owners also need to make sure they have the correct controls in place and that their employees have the proper training for situations like intoxicated customers. If they do not have the correct controls in place and their employees are not trained to handle it, then they will have a bigger problem on their hands.
What insurance policies can help them respond to these threats, and what are the limits and examples of covered expenses?
C.F.: For bars, taverns and restaurants, Commercial General Liability (CGL) Insurance and Liquor Liability Insurance are very important. If they do not have assault and battery coverage, which can be excluded or sublimited to very low sublimits, that could end up being a massive problem if they have a claim. They should also look for defense coverage outside of the limits, which means that the defense costs will be paid outside of the policy’s limit. That is huge because defense costs can suck up a ton of the limits immediately before you have even started paying the claim. They should also look at their Commercial Property Insurance or Business Personal Property Insurance, including any wind and hail or storm deductibles, as well as Equipment Breakdown Insurance.
How has COVID-19 affected the market for these policies?
C.F.: It has affected it and it is still affecting it. Construction did not stop, manufacturing did not stop, but what did stop was hospitality. The hospitality sector is one of the only sectors where in some states, many policies got canceled. The insurance carriers had to return all that premium, and that ended up making the rates higher because they went a couple of months without any premium. In addition, many businesses put in for a business interruption claim; even though they were declined across the country for the most part, that still cost the company money to go out and adjust the claims. The effects are still being felt.
What steps should business owners take or services they should invest in that complement insurance coverage from a prevention standpoint?
C.F.: It is always important that business owners understand what their risks are and have controls in place. Have formal, very rigid controls for things like intoxication, and have the staff properly trained to make sure they can handle those situations correctly. Be ahead of it. Empower your employees and support them whenever they have to go through those controls.
What are the greatest opportunities for brokers to get into Hospitality Insurance?
C.F.: Right now is a great time to be able to get into it. Outwork your competition, understand the forms, and understand what the coverages are and what is excluded. It is a very difficult marketplace but there are still solutions to be found. Find realistic opportunities and make sure the company’s finances make sense and that it is sustainable.
Why your clients might need it: Restaurant owners and individuals in the hospitality industry should consider their assets, know their potential risks, and always protect staff and customers.
Protects against: Potential losses associated with liquor liability, kitchen fires, food spoilage, cybersecurity, delivery services, physical injuries, and weather damage for example.
Expert opinion: Restaurant and bar owners should make sure they have the correct controls in place and that their employees have the proper training, especially for dealing with situations like intoxicated customers.
