Hospitality industry: protecting against the six most common risks

When considering potential risks in the hospitality industry, the list is a long one.

This has been brought into sharp focus by the current coronavirus pandemic that has hit every business imaginable, with fears now mounting about the future.

No one knows exactly how the pandemic will end, but one thing is clear, it’s already brought to light the risks associated with the hospitality industry.

So let’s look at the six most common risks, starting with interruptions, event cancellations and closures (related to COVID-19 and otherwise) but also extending to other key areas including risks to the public, property, staff, stock, as well as cyber crime.

And importantly, how you can best prepare for the future.

1. Event cancellations and business interruption

Some events can be cancelled for fairly common reasons such as wedding or seminar cancellations. While these can damage a business financially if the right contingencies aren’t in place, the effect is far less severe and prolonged than certain other less frequent events.

Pandemics, terrorist attacks and climate-related incidents can close a whole hospitality industry for weeks or more. The recent COVID-19 pandemic, for example, has seen the closure of restaurants, bars and hotels, exposing how poorly prepared many governments and businesses were for such eventualities.

Be prepared for the unexpected

Business interruption insurance can pay for loss of income in many cases. But this does need close inspection.

For example, it’s important to pay special attention to the wording on your existing policies because traditional business interruption insurance is often for physical damage. In the case of COVID-19, some will have mention of a notifiable disease, but whether COVID-19 falls under this definition will vary by insurer.

2. Public liability

Most hospitality businesses deal with a large footfall of people. According to a UAE 2018 Food & Beverage report by one of the world’s largest multinational professional services networks, casual dining restaurants alone process between 4,000 and 15,000 transactions per month. That’s a lot of accidents waiting to happen.

Be prepared for public liability

Public liability insurance shields your company against injury to a member of the public while interacting with your business. It’s vital to ensure the policy is sufficient to respond to all claims. This includes people getting injured, or losing their life, due to a staff member’s negligence.

Meanwhile, the reputation of your business is at risk as well, so any lability insurance should help cover costs of compensation, hiring solicitors, and court cases that could be detrimental to your venue and reputation.

3. Employee liability

In 2018, a report by Willis Towers Watson titled Insights Reputation Risk in Leisure and Hospitality quotes a study that notes up to nine out of 10 hospitality workers may have experienced some form of sexual harassment.

Issues with employees can arise in numerous ways, including sexual, physical or verbal abuse against clientele or other staff. A business that fails to deal with these issues and the changing pace of what is and is not acceptable could suffer both financially and reputationally.

Be prepared for employee liability

Start by creating a culture of zero tolerance. Provide clear guidance to all employees about acceptable behaviour and what to do if they feel this has been breached. Establish clear procedures for harassment cases, whether sexual or racial.

Put up signs or make notes in menus informing customers that a zero-tolerance policy is in place to protect all staff. And of course, review your liability insurance.

4. Food safety and allergens

This is a big worry for many in the catering industry, with most having strict regulations to reduce the risk. But it does still happen.

Back in 2017, Willis Towers Watson published a review of major events in the Leisure and Hospitality Practice report that was focused on the UK but can certainly be kept in mind for all countries. It found that there has been a 500% increase in food poisoning claims since 2013.

This issue is complex. Some are caused by clear faults by the business in question. But there are also fraudulent sickness claims which can have equally negative consequences for a business.

Be prepared for food issues

Be sure to clearly advertise allergens on menus. Put in place documented policies for handling allegations of sickness. These include having a robust investigation procedure and training staff on the best way to document complaints and claims.

Finally, it doesn’t matter where the contamination occurred in the supply chain, if someone is poisoned by your business you could be liable. A robust product liability policy is key.

5. Crime and cyber threats

Fraudulent claims bring us nicely to the topic of crime. In the hospitality industry minor crime, such as petty theft, is a fairly frequent occurrence. But more costly crime does occur.

One example is violent crime which can, for example, occur in nightclubs. The 2017 Willis Towers Watson Leisure and Hospitality Practice review of major events reports on an epidemic of acid attacks in London nightclubs. These types of serious crimes can result in prolonged closure of a venue.

The hospitality industry is also not safe from cyber crime. Many cafes offer WIFI to customers in exchange for data such as email addresses. Care needs to be taken that criminals don’t hack the network and that tough cyber security is in place.

Be prepared for crime

Make sure that your various insurance policies cover for things such as loss of money and personal belongings, legal expenses, and damage to areas that are prime targets like shop fronts.

If you offer WIFI or hold an extensive database of personal data, consider taking out specific cyber crime insurance. Also take note of changing regulations on how you gather and hold personal data. GDPR is a prime example.

6. Property damage

Linked to crime is damage to property. This can be caused by unlawful acts or by accidents via burst watermains, fire, and gas leaks.

In the event of a significant accident, the impact isn’t just to the property itself. A business will need to cover the cost of the damage plus the costs of losing revenue while the property is out of action.

Be prepared for damage

If you own the property, make sure you have buildings and contents insurance in place, naming any specialist equipment on the policy. If the property isn’t yours, make sure the landlord has all the correct policies in place. You don’t want any nasty surprises.

Expect the unexpected

So, these are six key areas to consider, but there are many more. If you think there is a particularly important risk not mentioned, please feel free to make a comment below.

Al Futtaim Willis is a commercial insurance broker and consultant operating within the UAE since 1976. Across geographies, industries and specialisms, Al Futtaim Willis provides its local and multinational clients with resilience for a risky world. For more information please call +971 4 376 0200.