The hospitality industry faces significant challenges, with recent data from Creditor Watch indicating that “one in every 11 hospitality businesses is expected to close its doors forever in the next 12 months.”
To safeguard your business against this trend, it’s essential to grasp the risks and responsibilities involved in operating a successful venue.
Risk Factors to Consider
1. The importance of industry knowledge and experience
When seeking insurance for your hospitality business, insurers will evaluate your depth of industry knowledge and experience.
A deep understanding of the hospitality sector demonstrates to insurers that you are aware of and capable of managing operational risks. This knowledge is crucial for determining your business’s insurance coverage and premium costs.
2. Understanding the risks of operating a Hospitality Business
Running a hospitality venue involves various operational risks. These risks can vary based on the services offered and the physical characteristics of the venue.
Understanding, identifying and analysing these risks allows you to make informed management decisions about how to handle them—whether to retain, mitigate, or transfer them to an insurance provider.
3. What insurers consider when assessing Live Entertainment risks for venues
Hosting live entertainment is integral to the charm of many hospitality venues, but it brings its own set of risks. Insurers evaluate various aspects, including:
- Venue Age: Older venues struggle with compliance for new regulations and may also face potential structural risks.
- Construction Materials: Materials that pose fire risks can increase insurance premiums and affect insurability.
- Infrastructure Condition: The age and condition of plumbing and electrical systems are essential for safety.
- Location Risks: Understanding potential flood risk and the proximity to high-risk neighbouring businesses is crucial.
- Capacity and Security: The maximum capacity and security measures, such as CCTV coverage, influence risk assessment.
- Operational Factors: Operating hours, on-site facilities, and entertainment offerings can affect risk profiles.
- Safety Systems: Operating hours, on-site facilities, and entertainment offerings can affect risk profiles
- Staff Management Competency: Properly trained staff and managers contribute significantly to effective risk management.
How your hospitality services affect insurance premiums
A lively, vibrant hospitality venue typically comes with higher risks, which ultimately influences premium pricing.
For example, a casual pub that offers food and drink with background music to encourage patron spending may experience minimal impact to insurance costs.
However, venues that feature dance floors, regular DJs, or live bands are classified into higher risk categories, consequently attracting higher premiums.
By fortifying your understanding of the risk factors, you can better navigate the complexities of insurance in the hospitality industry.
What insurers consider when assessing Live Entertainment risks for venues
Hosting live entertainment is integral to the charm of many hospitality venues, but it brings its own set of risks. Insurers evaluate various aspects, including:
- The type of music offered—background music, solo artists, duos, or bands
- The presence of a dedicated or non-dedicated dance floor and how frequently events with dancing occur
- Whether you host concerts or regular band performances
- If you charge entry fees for events
- The type and frequency of entertainment nights held throughout the week
- The preventative measures for alcohol consumption on dance floors (e.g., plastic vs. glass)
- Your security protocols and use of external security
- Maintenance and cleaning protocols
The impact of external security services on insurance premiums
The presence of external security services can significantly influence insurance premiums for hospitality venues.
Insurers typically view venues with dedicated, trained security personnel as favourable because some of the risk is transferred.
The right security measures can deter potential incidents, thereby reducing the likelihood of insurance claims.
Key benefits of integrating external security services may include:
- Risk Mitigation: Professional security firms provide expertise in identifying potential risks and implementing strategies to mitigate them.
- Incident Response: Quick response times to incidents can prevent escalation, influencing insurers’ perceptions of your risk profile.
- Reputation Management: Enhanced security can improve patron safety and comfort, leading to a better business reputation and customer loyalty.
Insurers conduct thorough research beyond your insurance proposal forms, including evaluating your online presence. They may look at your social media presence and website for further insights into your business.
They may look at:
- Types of events and entertainment on offer
- Use of high-risk activities, such as pyrotechnics
- Unfiltered feedback from patrons on your social media platforms
Activities that may elevate your insurance premiums might include:
- Fire-breathing bartenders
- Bar or table dancing
- Mechanical bulls
- Frequent live events, entertainment, or dance nights
- Shot bubblers
It is crucial to reflect these activities in your insurance proposal accurately. They will find out!
The impact of mitigating hospitality risks on insurance premiums
Insurers consider your approach to safety and maintenance when setting premiums. Therefore, to help manage premium costs, insurers will look at whether you:
- Document and implement cleaning procedures and building maintenance programs
- Use no-slip flooring and/or strip lighting on stairways to reduce the risk of a fall
- Develop, test and implement fire evacuation procedures. Ideally, there should be visual aids to help patrons easily understand escape routes and meeting points.
- Manage frequency of live events, entertainment, or dance nights
- Transition to plastic drinkware at a certain point in the evening to reduce injury risk at lively venues
- Use external security patrols to maintain staff and patron safety
These are just a few of the considerations that can help to mitigate risk. The actions you take may help to reduce an otherwise high insurance premium.
The importance of accurate business activity declarations
When applying for insurance, it is paramount to declare all business activities accurately. Insurers rely on this information to assess risks and set premium costs.
Concealing information to reduce costs can backfire. It may lead to lower payouts due to underinsurance or invalidate insurance, which could heighten your financial exposure.
Seek Professional Guidance for Accurate Insurance Proposals
To ensure an accurate representation of your hospitality business for insurance purposes, consider consulting a risk and insurance adviser.
Their expertise can lead to more precise proposal submissions and, ultimately, more accurate insurance premiums.
By providing a comprehensive picture of your operations, insurers can use the information to accurately assess whether and how they underwrite the insurance for your hospitality business.
Key Takeaways for Managing Hospitality Risk
To ensure you put your best foot forward for hospitality insurance consider the following:
- Gain the industry knowledge and experience you need to be successful
- Understand and mitigate the risks associated with your hospitality business operations, venue and service offering
- Plan and execute venue safety measures
- Ensure the venue remains clean and well-maintained
- Provide an accurate picture of your hospitality business and its activities to insurers
- Seek professional risk and insurance advice
Reviewing the risk and insurance program for your hospitality business
If you would like a no-obligation review of your current risk and insurance program or would like to discuss your insurance options before purchasing a hospitality business, contact Clear Insurance for a risk and insurance review.
Clear Insurance has been advising hospitality businesses for over 15 years. It is a bronze sponsor for Clubs Queensland and a sponsor of the RSL and Services Clubs Association of Queensland.
Contact Lisa Carter today at lisa.carter@clearinsurance.com.au or call our team now on 1300 721 132.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
Clear Insurance Pty Ltd. ABN. 41 601 916 689. AFSL No. 548953.
