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October 20, 2020

How Has COVID Affected Risk and Insurance Rates in the Hospitality Sector?

The hospitality sector has been hit hard by the coronavirus. From infected cruise ships to shuttered bars and bowling alleys, the pandemic has impacted hospitality businesses in many ways. It’s also impacted insurance rates and risks for the industry.

Business Interruption

Many businesses have been forced to close because of COVID-19 and stay-at-home orders, and some of these businesses sought relief through business interruption coverage. However, business interruption insurance policies often require property damage to trigger a claim, and it has been argued that viral outbreaks are excluded from coverage.

This has led to a heated debate and a slew of lawsuits. According to Insurance Journal, at least 700 COVID-19 business interruption lawsuits have been filed.   

Vacant Buildings

When a business closes, the loss of income isn’t the only concern. Vacant buildings can be especially vulnerable to various types of damage.

  • Because no one is around, looters and vandals may target the building. 
  • Water leaks, pests and other types of damage may go unchecked.
  • Mold and Legionella, the bacteria that causes Legionnaire’s disease, may thrive in empty buildings, according to the CDC.

Infection Liability

Businesses that close face risks, but businesses that stay open or reopen also face risks. Namely, if workers get sick, they may try to sue the company or file a workers’ compensation claim.

Some business owners have tried to protect themselves by requiring employees to sign waivers of liability. However, these waivers might not be enforceable, and according to Fortune, some employees have already filed lawsuits after being fired for refusing to sign on the dotted line.

Rising Rates

Commercial insurance rates have been increasing, and this trend may be accelerated by the pandemic. According to Business Insurance, the Council of Insurance Agents & Brokers reports that commercial lines increased an average of 9.3% in the first quarter of 2020 and 10.8% in the second quarter. Workers’ compensation insurance rates, which had been declining for the last five years before the pandemic, increased 0.7%.

Another article from Business Insurance states that the hospitality sector is among those seeing higher rates because of the pandemic. Renewals are also taking longer because underwriters are overwhelmed with submissions. 

Business owners in the hospitality industry are struggling with increased risks and rates. This is a difficult and unprecedented time. However, certain steps can be taken to alleviate the burden caused by COVID-19.

  • Talk to your insurance agent about your current situation. If your business has closed temporarily, for example, your insurance needs might be very different.
  • Seek legal advice before making employment decisions related to COVID-19. Businesses that have fired employees who criticize safety procedures or who refuse to sign liability waivers have been sued.
  • Follow safety guidelines carefully. Keeping your employees and customers safe must be a priority. Follow guidelines from your state, your industry and the CDC.

The Heffernan Insurance Brokers’ Hospitality Insurance Team is here for you. If you have any questions, contact us

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