Hospitality sector facing underinsurance crisis

There are warning that the hospitality industry is facing emerging underinsurance risks amid rising costs and inflationary pressures.

Broker Lockton has  said there are growing concerns that as the hospitality sector recovers from the pandemic, and inflation rises, businesses are not adapting their coverage limits to reflect the emerging threats, leaving many inadvertently underinsured.

The broker’s head of hospitality Andy Nicholson explained: “While the financial prospects for the hospitality industry have improved significantly due to rising demand this summer, businesses are at risk if the values insured are not adjusted appropriately to account for the sharp rise in inflation being felt across the globe.

“Inflation combined with scarcity of labour and building materials, are all factors which have changed the operating landscape for many businesses, and as a result, the amount and value of risk they have inadvertently taken on.”

He added the growing pressure on materials were having a significant impact and one which had to be factored into insurance coverages.

“Property damage claims are being hit particularly hard because of international shortages in timber, steel, cement, metals, and plastics,” Nicholson added. “This, combined with a global shortage of shipping containers, is leading to the ‘perfect storm’ of significant delay and exorbitant international freight costs. An increase in housebuilding and infrastructure projects is also driving the cost of labour higher.

“The factors above are resulting in many reinstatement projects running overtime at a much higher cost than originally anticipated. Ensuring underinsurance doesn’t pose any significant business disruption risks will be key in the remainder of 2022 when inflation is expected to only rise more.

“To do so, firms should conduct more robust reviews of building reinstatement values than in recent years and consider appointing a third-party valuer to undertake a Reinstatement Cost Assessment. It’s worth also asking your insurance broker to review current policy conditions, ensuring they are fit for purpose and provide appropriate protection to help mitigate the potential for underinsurance.”

SHARE: