Has COVID-19 changed restaurant insurance forever?
Canada’s hospitality sector was particularly hard-hit by the COVID-19 pandemic, with government-mandated shutdowns and restrictions grinding the industry to a halt.
Now, as restaurants return to pre-pandemic foot traffic and revenue levels, the need for insurance solutions and capacity is increasingly apparent.
“The hospitality industry really got hit with a perfect storm,” said Jeff Somerville, managing director of SUM Insurance. “The insurance market serving the hospitality industry was shrinking or hardening even before the pandemic. Competition pushed prices to unsustainable levels.”
Lockdowns, COVID-19 restrictions and market uncertainty “sent a further chill through the insurance industry,” he added. “That drove further scarcity [of capacity and offerings] and some real challenges and suffering for the already beleaguered hospitality industry.”
Management experience is always a key underwriting factor for hospitality insurance, but HR disruptions and staff turnover driven by lockdowns amplified its importance, noted Dan Lopes, SUM’s assistant vice president of commercial general liability.
“Now you have a new wave of servers and employees in the hospitality space, because a lot of them exited during COVID,” Lopes told CU. “Stress on experience has heightened — manager experience, staff retention and staff training, those are the biggest identifiers in terms of underwriting that I’ve seen.”
Alcohol servers should always be Smart Serve qualified and certified. With that in place, underwriters will then “gather what the staff retention looks like, how high the turnover rate is, and what minimum experience bartenders need to have to be behind the bar,” Lopes added.
Insurance for the sector includes a variety of covers.
“This business presents some pretty tough hazards and risks to insurers. You’ve got pretty severe [exposure] on the first-party property and business interruption side, and a tough casualty line risk, particularly when liquor liability is [present],” said Somerville.
“That’s where management experience and staff credentials really come into play to handle these dynamic scenarios. It’s starting to turn around, as more and more establishments adopt better and better risk management.”
Typically, establishments are rate-based on revenues alone, Lopes said. “But that’s not always a good indicator of the actual liquor exposure. So, we’ve taken a novel approach of underwriting based on actual units of alcohol sold.”
A bar offering cheaper drinks may make less money and typically pay less premium through traditional underwriting, but their exposure is greater because more units of alcohol are sold.
“They are the ones that should technically be getting more premium because they’re more exposed,” Lopes said.
Duration of the current hard market in commercial insurance has defied expectations — even if pricing for hospitality remains elevated, Somerville observed. “We have some normalization of the amount of capacity available, and pricing has moderated.”
Feature image by iStock.com/LumiNola
