Hospitality businesses have been among the hardest hit by the COVID-19 pandemic. Every week there’s a new list of restaurants and bars across Canada that haven’t made it through the economic crisis. Many have struggled to maintain financial viability due to the prolonged mandatory shutdowns and the stringent social distancing guidelines they must follow upon reopening.
Those that have managed to survive the past few months now face the tough task of re-building their businesses and finding new ways to boost their sales and services in a society still facing strict pandemic-related requirements. One of the financial pain points they’re facing at this time is the rising cost of insurance. This is part of a wider trend in the property and casualty insurance industry of hardening market conditions, characterized by inflated insurance premiums, coverage restrictions and an ongoing reduction in market capacity.
Some of the more financially strapped hospitality businesses may look to cut costs by opting to go without insurance, but, according to Tyson Peel (pictured), vice president, director of property & casualty, Burns & Wilcox Canada, that’s “not the right angle” for insureds to take.
“Insureds really need to protect their assets going forward,” said Peel. “Yes, we recognize that rates are going up and they might be in a financially difficult point, but part of our underwriting process is to review the financial strength of these risks going forward, and if they’re not financially viable, the question becomes, should they be reopening anyway?
“It’s an issue that we have to discuss with the broker and the insured directly, so they really recognize that insurance is a necessary item of doing business in Canada, and they need it to protect their assets. If you’re already strapped for cash or financially unviable, and you opt to go without insurance, how are you going to pay for a fire in your kitchen or for a million-dollar liquor-related claim? I would say that insureds should definitely still have coverage; it’s just about making sure the limits [and terms] are acceptable to them.”
Finding adequate coverage limits, terms and conditions has become much more difficult in recent months due to the ‘perfect storm’ combo of the hardening insurance market and the global pandemic. It was particularly challenging for brokers looking to obtain quotes for new business, but, as Canada has slowly reopened, more and more markets are getting back in the game and are willing to review submissions. However, the marketplace will be different for some time, explained Peel, as underwriters will be looking for new COVID-related measures before they grant coverage.
“One of the new items that we’ll definitely be looking for going forward would be that financial aspect - will the insured be viable in the next three to six months?” said Peel. “We’re definitely looking at the financial strength, so if you have a way of showing that either through financials or showing us some sort of background of who might be backing them to provide that financial support, that’d be nice to have.”
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Underwriters are also looking for insureds’ new COVID-19 regulations and how they’re handling all the government regulations that have come into place for social distancing. Peel stated that Burns & Wilcox will need to see an outline of each insured’s plans and what they’re doing to ensure that their restaurant or bar doesn’t become another COVID-19 hotspot and trigger another outbreak.
“In terms of that financial aspect, if they’re going to be able to survive, they need to have the right protocols in place, and they need to have the right plans in place to be able to adapt to this changing marketplace, expecting their sales to potentially be down,” Peel added. “How are they going to turn around those sales? Are they going to do more deliveries? Are they going to do more takeout because they can’t have as many people in the restaurant?
“Toronto used to be a prime example of jamming as many people as you can into a restaurant to make as much money as possible and turn those people around very quickly. The new system going forward will be very different, so it’s going to be very interesting to see the plans that these restaurants, bars and hotels will come out with to really combat these situations.”