Welcome to the Hospitality Insurance Market

First the good news: the hospitality industry, which includes hotels, motels, restaurants and bars, has rebounded since its COVID low point.

"The industry demonstrated real resilience during the pandemic, when some predicted its demise," says RPS's Kevin Nelson, producer — Commercial Lines. In fact, restaurant sales are forecast to top $1 trillion this year for the first time in history, according to the National Restaurant Association.*

Now the bad news: Nelson says that the industry is still experiencing labor shortages after the pandemic, when many workers were pushed out of their jobs.

"The industry has made headway in adding jobs, but more workers are needed, wages are up, and labor retention is challenging," says Nelson.

The restaurant industry is the nation's second-largest private-sector employer. In fact, according to the association's report, restaurants hired about 300,000 workers in 2023 and are expected to hire about 200,000 more this year.

Not Much of a Taste for Liquor Liability Coverage

Insurers have become increasingly strict about their liquor liability appetite and underwriting guidelines.

"In 2023, many carriers pulled out from writing Liquor Liability entirely," says Nelson, "while others will consider writing bars or restaurants with 30% or less in liquor sales. Bars and taverns with 75% and more in liquor sales have been challenging to place and continue to find difficulty into 2024."

Dram shop liability laws in 42 states and the District of Columbia make it easier for restaurants to be found liable for liquor-related claims. Dram shop liability laws, in general, state that a commercial establishment such as a bar or restaurant can be liable for the harmful acts of its intoxicated customers when it acts negligently in serving the intoxicated customer alcohol and the customer then causes harm as a result of intoxication. Typical lawsuits stem from drunk driving accidents and bar fights.

"If an individual patronizes a bar after already having had 10 drinks at another establishment and the bartender serves him another drink, and he gets into his car and causes an accident, the bar could be liable for damages even though the bartender served the customer only one drink," says Nelson. "These types of lawsuits have made Liquor Liability unprofitable and forced carriers to reassess their appetite."

Nelson notes that RPS has markets that will consider liquor liability exposure, depending on the individual business.

"Carriers will examine whether the bar or tavern offers drink specials or has live entertainment. They will also look at the bar's closing time, which increases the operation's risk," he says.

Clients unable to find coverage in the market will turn to the state's assigned risk pool if it exists, but limits are typically lower.

"It's important to understand your state's laws and evaluate what type of activities you offer. A bar, for example, may want to consider forgoing happy hour and other drink specials to get the insurance protection they need," explains Nelson.

Ensure Hospitality Clients Manage Their Online Profiles

Hospitality clients must also manage their image online, including their customer reviews and what offerings they feature on their website. Your clients should update their online profiles to reflect what they offer.

"If they no longer offer a two-for-one drink special, remove it from the website. Underwriters look at and review social media and websites when assessing a risk," says Nelson.

Hotels/Motels: Get Ahead of Renewals

The hotels/motels segment has had its set of challenges, especially on the Property insurance side. Hotels or motels with exterior entrances, smoking rooms, water slides or water parks are more difficult to place.

"Carriers want to see how well a hotel is managed," says Nelson. "Agents need to get ahead of renewals so their clients know what to expect. Work 90 days in advance of renewals, talk to clients about how they can mitigate losses and share their loss-control strategies with the carrier."

Agents with hospitality clients know the industry's challenges and how they can morph. Staying abreast of current trends and insurance strategies can go a long way in the search for coverage.