South Africa attracts business and holiday travellers and despite the negative impact of crime and politics, further complicated by the new visa regulations, the low value of the rand makes South Africa a relatively inexpensive and attractive destination.
With international visitor numbers up by 16,8% between January and April 2016 when compared to the same period in 2015, the forecasts for the immediate future are positive. Our devalued currency also keeps more South Africans on local holidays with international travel out of reach for most.
The tourism industry therefore continues to play an important role in the South African economy and with a wide range of hotel classes and accommodation, whether a small guesthouse or a large hotel, there are certain basic covers that are mandatory for operation; to neglect to insure would be highly risky and certainly not responsible good governance.
When considering the growth prospects forecast for this industry, it’s important to recognise that there are equally as many risks, as there are opportunities to prosper. Risk management is therefore fundamental to successful operation in an industry like this; it’s in everyone’s best interests to avoid a loss occurring because hospitality losses generally run into millions.
The client, broker, underwriter relationship therefore becomes incredibly important and we treat it as a three way partnership between these parties. When it comes to game lodges, this is particularly true with thatch roofs, generally surrounded by bush, and located at great distances from any fire brigades, the norm. As a consequence, specialist knowledge is required to provide the insured with the correct risk management advice and to underwrite the risk appropriately.
Being mindful that traditional liability cover falls short when it comes to the hospitality industry could be the difference between being under insured or not covered at all. While it’s true the buildings and contents must be insured against fire and perils such as those brought on by nature: storms, earthquakes, hail, etc, a hotel or guesthouse also needs theft cover. This cannot, as is the case with the normal commercial / domestic policy, be subject to forcible and violent entry, because the premises are open – usually the best part of 24 hours a day. Theft of guests’ effects would also need to be covered even though the hotel does not own the property.
A relatively new complication is that brought about with the launch of AIRbnb* – an online marketplace that enables people to list, find, then rent holiday homes for a processing fee. It has over 1,500,000 listings in 34,000 cities and 191 countries. In this case a domestic policy will not cater for the additional risks facing the establishment and if the Insured does not have the correct cover, claims might be repudiated on a domestic policy.
Vehicles used by hospitality establishments also need to be insured and in the case of game drive vehicles, which are specifically modified, they no longer can be categorised as a run of the mill vehicle. Passenger liability cover should also be in place. If a hotel has a golf course then insurance should be arranged to cover the greens against not only normal fire and storm perils, but if, for example, they were damaged from the incorrect application of fertilizer.
Public Liability is understandably important to guesthouses and hotels and the liability would vary depending on what activities were on offer at the establishment. A standard guesthouse, which only offers overnight accommodation, would need different cover to the venue that also provides food. By offering meals, the business introduces the risk of food poisoning and needs additional cover. Larger hotels or game lodges have all manner of activities available, including game drives, horse riding, quad biking, and abseiling to name but a few. In such instances the insurance requirements would be directly linked to the activities on offer.
Game lodges present a unique set of circumstances with risks presented by the game and HIC has underwritten several claims related to incidences involving guests who have been harmed by wild animals. Once such case involved an elephant that attacked a game drive vehicle and when the tusk penetrated the vehicle, it injured the guest. Another case involved a rhinoceros that charged and injured a guest after the game warden allowed the individual to get out of the vehicle to take a photo. In January 2012 during the Limpopo floods, hotel guests had to be evacuated; an unusual circumstance and one that had to be covered by our specialised product. A recent heart-breaking case saw a child electrocuted while playing on a jumping castle.Unfortunately accidents will happen, be it from product failure, negligence, nature, or unforeseen and unavoidable circumstances. Whatever the cause, in times like these, the liability insurance can be the difference between the survival or closure of the business.
Business Interruption is another mandatory insurance for all hotels and guesthouses and needs to be specifically tailored to the hospitality industry. Unlike some industries, business interruption for the hospitality industry can have considerable and disastrous financial implications particularly in the case of fire.
There are plenty of other reasons why the business might suffer a business interruption loss with a subsequent reduction in profit as a result of a loss of clientele. Some of these risks include: Murder or suicide occurring on the premises, or if there were a
shark attack at the beach which was then either closed or people were too nervous to use those facilities and cancelled their coastal holiday booking. Yet further examples include failure of the air-conditioning at a hotel resulting in cancellation of bookings, loss of a liquor license, closure of premises due to defective sanitation, vermin or pests, notifiable disease and many others that a standard domestic or commercial policy would not cater for. There could also be cancellation of bookings as a result of loss of a tourist attraction.
For example if the roads were damaged and access to a tourist attraction like the Cango Caves was not possible, the incentive for someone to stay at the hotel or guesthouse in the area would be removed. In such cases there must be additional extensions to the normal Commercial and Industrial policy that allow for such losses of revenue.
Any one of these events could result in customers cancelling their booking which could run into hundreds of thousands in lost revenue depending on the severity of the incidence; longterm reputational damage could also impact the business as a result of these occurrences and in some cases, the establishment may never recover.
Hospitality Industrial Commercial Underwriting Managers (HIC) has been trading for close on 20 years and to this day remains one of the only independent underwriting managers to focus on hospitality. With our wealth of experience and specialised knowledge, we know the risks associated in the hospitality industry and have tailored our product around these different exposures.
For further information on hospitality insurance, contact HIC on www.hicsa.co.za or contact 27 11 455-5271.
DENLEIGH WILENSKY, HIC Executive Director