SERVICE WITH A RELUCTANT SMILE

By MARTIN WANLESS

If there’s one sector that has done it harder than most over the past four years, it’s hospitality.

Shutdowns and general disruption resulting from the pandemic caused significant issues at the time – and those issues continue to be felt. Combined with the inflationary pressures we’re all facing, supply chain shortages and a shallow talent pool, the industry is dealing with significant uncertainty.

A number of challenges stem from workforce-related repercussions following COVID-19, says Richard Robinson, Associate Professor at The University of Queensland Business School.

“There’s been a major disruption to the workforce, the pipeline of talent and the attractiveness of the industry to different labour markets that would traditionally have seen hospitality as appealing,” he says.

“During COVID-19, the middle tier of management, where a lot of the cultural capital of the industry and businesses sat, left the sector as they had valuable transferable skills.

“They’ve moved into sectors such as allied health and aged care, and that’s left a really big gap – which a lot of us see evidence of when we have hospitality experiences now. Consequently, the industry has lost even more ground in terms of being attractive as a long-term career for many labour markets. And that’s going to take some time to build back.”

The Risks Of Diversification

As well as dealing with staffing challenges, hospitality venues are being forced to explore new avenues of revenue, and are changing business models –inadvertently introducing new risks, which, from an insurance perspective, prove challenging.

“We have found a lot of operators within the hospitality sector have diversified their revenue streams to boost profitability and respond to consumer behaviour,” says Ben Gair, Director at Bellrock.

“As such, the landscape of hospitality has shifted with an ever-increasing amount of live entertainment, pokies, technology and other functionalities. This has led to reduced appetite in the insurance market, resulting in less capacity, fewer deductibles and, in many cases, exponentially increased premiums.”

In addition to changing offerings, some hospitality businesses have undergone changes in ownership structure, which creates new challenges from a liability perspective.

“Hospitality businesses often have a separation of ownership from operations, in that the people who own and maintain the asset aren’t the ones operating the business,” says Robinson.

“This trend is exacerbating, and from a risk perspective, there are complex contracts to unpick.”

FIRE-RELATED RISK MITIGATION

A significant risk for hospitality businesses is fire, and insurers are keenly looking for risk mitigation strategies to limit the threat of a blaze ending up a total loss.

“Fire risk is an ever-present factor,” says Gair.

“Hazard inceptions such as cooking areas are still causing fires, which has historically reduced appetite from insurers. Maintenance programs and risk prevention controls such as fire suppression systems or sprinklers are looked on favourably by insurers.”

Sam Reid, Director – Head of G.O.A.T. Insurance, says almost all fire losses are a result of electrical or wiring overload, kitchens or fireplaces.

“It’s important that these risks are managed,” he says.

“There are simple procedures that can be undertaken to prevent these losses. Risk surveys, wiring scans, kitchen exhaust cleaning, deep fryer auto cut-off mechanisms, kitchen fire suppression and chimney cleaning are key areas where risk mitigation can be introduced, as well as monitored smoke detection if the premises are not occupied after hours.”

Reid says that, while a lot of the risk mitigation measures can seem laborious, they have a material and measurable impact on reducing risk and loss.

“We have numerous examples of when a wiring scan has identified a hot spot to prevent loss and a few examples of when this has not been carried out and resulted in a loss,” he says.