Retail, Hospitality, Tourism & Leisure: A uniquely hard market experience being felt within the Casualty insurance sector

The end of each financial year provides the insurance industry with a unique insight into the current state of the market, as well as some hints as to what to expect over the next twelve months. This is assisted by the high volume of renewals that coincide with “June 30”.

The second half of 2017 was when it became apparent that a ‘hard market’ was again upon us. Since then, moderate to high annual rate increases have been experienced across Property (bearing annual rate increases in the double-digits) and Financial Lines, where annual rate increases have also consistently been in the double-digits and exponentially higher in the case of Securities cover under Directors & Officers policies for publicly listed companies (‘Side C’ cover). See our article here addressing D&O/Side C here.

Public & Products Liability, often referred to as the ‘Casualty’ market, has been a policy class that has escaped the brunt of the hard market to date, consistently experiencing annual rate increases of approximately 5%. However, our experience from the recent June 2020 renewal period is that particular industries are now experiencing significantly higher Casualty rate increases. These are:

• In-store Retail, with emphasis on shopping centres and any businesses with a high degree of foot-traffic;
  


• Hospitality, with suburban and rural restaurants, pubs and hotels now being classified in the same high-risk pricing brackets as inner-city locations and those operating after midnight; and
  


• Tourism and Leisure, with many operators being unable to obtain cover for activities that were traditionally covered through Lloyd’s of London.
  

Unfortunately, the above industries have been severely impacted by COVID-19 (trade restrictions and the resultant changes to consumer spending). This has compounded with the financial burden of higher than anticipated premium rate increases. In each of these industries we saw average premium increases greater than 100% for policyholders with no current or active claims.

The Tourism and Leisure industry must now must assess the financial viability of operating adventure activities (such as zip lines, quad bikes, jet skis and water skiing) against rising liability insurance costs. Premiums and excess structures are increasing and coverage is narrowing.

In the Hospitality sector, security contractors are experiencing rate increases of several hundred percent and are struggling to obtain cover. Consequently, these businesses are seeking to reduce their exposure by denying requests by their venue clients (principals) to provide indemnities to them and otherwise extend the benefit of their cover to their principals.

Hospitality security contractors have historically attracted high premiums and onerous excess structure for claims in connection with actual or alleged “assault”. It may be said that this is influenced by the consumption of alcohol in venues which is often considered the catalyst for personal injury / assault claims. However, the recent rate increases are so pronounced that we anticipate flow on effects including more rigorous risk management and venue safety measures at pubs and clubs in a post COVID-19 world.

In the most recent soft market, the rule of thumb was that a loss/premium ratio of 40% or lower reflected a profitable account. Whereas, anything in the order of 60% was at the cusp of correction through rate increases or reductions in cover, such as imposition of a higher excess. We were advised by several insurers during the recent June renewal cycle that their target loss/premium ratio for Retail, Hospitality, Tourism and Leisure industries is now 20%. This means insurers will increase scrutiny on claims histories and risk management for future renewals in these industries.

Policyholders must present as a sophisticated ‘risk to minimise rating and excess increases. We consider, that to do so, the steps that may be taken by businesses in the Retail, Hospitality, Tourism and Leisure industries include:

• Engage with Experts: lawyers; Work, Health & Safety consultants; Risk assessors; etc, can help develop policies and procedures, and a system of monitoring, communicating same to staff and improving protocols which can ensure “best practice”.
  


• Review contracts, in particular indemnity clauses and ensure you are not assuming liability for risk “outside” your control, and/or otherwise is uninsurable.
  


• Engage reputable contractors and/or suppliers and ensure that they maintain appropriate insurance coverage for their activities.
  
  For example, most businesses should have a Public & Products Liability policy with a limit of at least $20,000,000 for any one Occurrence;


• Insist contractors provide proof of insurance on a regular basis and, where possible, seek to have contractors/suppliers provide contractual indemnities and/or extend cover under their policies to your business, for vicarious liability arising from the contractor/supplier’s activities.
  
  It is important to note that with contractors/suppliers also feeling pressure in terms of their renewal premiums and derogation of cover, it could be expected that requests of this nature will be more strenuously negotiated than in previous ‘soft market’ years;


• Ensure rigorous cleaning regimes are in place.
  
  Members of the public generally have access to the premise of these industries creating unique exposures. As such, insurers are increasing their requests regarding businesses COVID-19 risk management procedures;


• Undertake regular independent slip testing of floor surfaces to ensure compliance with relevant standards and applicable legislation;


• Ensure car park surfaces are even and well-lit at all times.
  
  Car parks are a major source of trip and fall incidents and insurers are looking for businesses that are proactive in their car park maintenance;


• Where the operators of Retail, Hospitality, Tourism and Leisure businesses are also the property owners, insurers are likely to request that the businesses have taken steps to identify any combustible Aluminium Composite Panelling (ACP) and, if present, have a remediation plan in place.
  
  A general fire safety review should be undertaken to address issues such as signage, access and egress;


• Where security is required, it is insurers’ preference that this be provided by external contractors with reputable insurance;


• Maintain high incident reporting standards
  
  Ensure all evidence and relevant documentation, including CCTV of any known incidents is adequately stored.

Ultimately, insurers are looking to partner with businesses that are mindful of their operational risks and are proactively seeking to manage same. In circumstances where the Retail, Hospitality, Tourism and Leisure industries are feeling the effects of the hard market’s increasing Casualty rates, those industries are likely to be required to demonstrate that they are taking steps ‘above and beyond’ their risk management practices. As always, we recommend engaging with your broker early in the renewal cycle to ensure that these issues are dealt with on the front foot, to assist with obtaining more favourable renewal outcomes.