Responding to a terrible trio
Harvey, Irma and Maria test the Leisure and Hospitality Sector
During a four-week period, Hurricanes Harvey, Irma and Maria (HIM) battered the Gulf Coast region and the Caribbean. The storms pushed catastrophe losses for the year to the second highest on record, with the total insured loss fi gure estimated to be in the region of $93bn*.
The scale of the events saw many industries impacted and regions devastated. Given the locale of the losses, the hospitality and leisure industry in affected territories has been severely disrupted.
It is unlikely this is the last time the sector faces a series of major windstorms, but the intensity and quick succession of the storms was a major test. As expected, lessons have been learnt from how insurance policies have and are responding to the losses.
An interdependent industry
The multitude and magnitude of claims being handled has raised contentious issues and exposed a number of deficiencies in insurance programs, as the scale of the losses breach policy defenses. The diversity of losses has required the full engagement of Crawford teams, from the Global Markets division managing multi-national programs and the expansive capabilities of the Crawford Forensic Accounting Service, to its Global Technical Services teams tackling the full breadth of claims situations, through to the third-party services of Broadspire and the on-demand services of its subsidiary WeGoLook to speed-up loss assessments.
“We have been working with organizations across the hospitality and leisure spectrum, from small-scale localized business owners through to mega resorts, tackling scenarios from total shutdown through to partial shutdown and loss of market,” explains Terry Hunt, senior vice president & head of Global Technical Services U.S. at Crawford.
While property-related claims will certainly require intensive discussions to ensure satisfactory completion, perhaps the most contentious issues emerging relate to areas such as periods of indemnity, business interruption (BI) and non-damage related BI.
“A key issue is the interdependent nature of the industry,” explains Jenna Morgan, director of Crawford Forensic Accounting Services at GTS. “It is an extension of the community in which it operates and that is what leads to a lot of the coverage challenges. The big issues are going to be around dependent properties and loss of attraction. All of these types of extensions are being tested.”
As Hunt points out, in the case of Puerto Rico, in addition to what in recent years has been an expanding tourism industry, the island is heavily dependent upon large-scale manufacturing. “Puerto Rico sees thousands of people travelling to the island each month on business-related visits to manufacturing facilities. If these are shut down, that influx stops, which has a knock-on effect on occupancy rates and negatively impacts the wider leisure and hospitality sector, as restaurants, bars and casinos see a downturn in trade.”
“This is a major issue for business owners,” Morgan adds, “as they are experiencing financial losses not directly attributable to any actual property damage that has been sustained, and therefore often not specifically covered under the scope of their insurance policy. A case might be a convention facility forced to close following a drop in attendance numbers due to the fact that surrounding businesses remain closed, even though the hotels may be operational. These ‘loss of attraction’ type exposures are the long-tail challenges.”
The long haul
The claims conundrum is trying to decipher and attribute losses to a specific cause. “When you look at non-damage extensions such as off-premises utility failure, loss of attraction, civil authority restrictions affecting ingress and egress, the key areas tend to be time constraints as well as sublimits attributable to those extensions, as these can be exhausted very quickly.” As with any complex eco-system, the challenge is not simply how to contain the ripple effect, but also the time it takes to re-establish the balance that has been disrupted.
“The leisure and hospitality, and insurance industries are now asking what the new normal looks like in these severely affected areas,” says Hunt. “Some have been devastated, and for the hospitality arena there will undoubtedly be a new industry benchmark set even after all of the facilities are up-and-running, the infrastructure repaired, and the airlines and cruise lines operating again.
“From a financial perspective, your organization may still be suffering a loss and will continue to do so for a period of time,” adds Morgan. “But is this something which can be directly attributed to an insured event, or is it simply a reflection of the new economic climate which pervades not only the sector but the region as a whole?”
Taking a step back
HIM has certainly stimulated a period of reflection for the hospitality sector and has led many to reassess their policies and overall insurance strategy. “I don’t mean to sound self-serving,” Hunt states, “but it is imperative companies have nominated experts with a sound working knowledge of their program and a solid relationship with their risk manager. During HIM, there were numerous resorts and leisure facilities scrambling for adjusters when resources were being stretched to the max, while those with nominated experts were dealing with the aftermath almost immediately.”
Having that day-to-day working relationship with the risk manager means the adjuster is fully up-to-speed on the components of the policy and as a result can sometimes pre-empt the challenges before they arise or at least be better prepared to respond.
“That closeness,” he continues, “means that when disaster strikes not only can you respond quickly but, in some cases, also creatively based on the situation.”
He cites an instance following Katrina, where Crawford worked with a major hotel to enable it to become in effect a ‘dorm’ for 1,000 students displaced from a large university, with the facility’s convention center serving as temporary classrooms. “That was a really good outcome because we knew the risk manager and this enabled us to be creative in how we approached the challenge.”
For Morgan, it’s a time for insureds to review their insurance policies, particularly considering major refurbishments that may have been undertaken. “You need to ensure that you are up-to-date on property-related developments, but also factor in changes in the market climate you may now face. You need to actively re-evaluate your policies in light of this new norm, rather than letting them carry over.”