At RiskBox, we understand the unique insurance needs of the hospitality industry and offer coverage for a wide range of businesses, from small cafes and restaurants to late-night licensed bars and venue chains.
Regardless of the size of your establishment or the type of business you run, it’s important to make sure you have the right coverage in place – and that will vary greatly based on your company and its services and entertainment.
As a business owner in hospitality, understanding the specific risks associated with your particular organisation means you can look to manage your risks and get the right insurance in place to protect you and your customers.
So, what do insurers consider when assessing risks? We’ve put together a few areas – but it’s by no means exhaustive, and when it comes to risk management, we recommend engaging specialists.
Why might a hospitality business be high risk for insurers?
Insurers may view a hospitality business as high risk for several reasons, such as:
Footfall and capacity
Consider how many people you welcome through the doors. Restaurant owners or larger entertainment venues can have a higher risk of accidents or incidents. If your establishment has a high footfall, there’s a greater chance that something might happen.
Businesses with a higher capacity also have a more significant worst-case scenario should there be a major incident, like a fire.
Serving alcohol can increase the risk of liability claims for things like slips and trips and escalate the likelihood of violent incidents.
In particular, late-night licensed premises are considered high risk – meaning fewer insurers will be prepared to quote. An extreme example might be nightclubs, where only a handful of schemes offer suitable cover, and the premium reflects these risks.
While small cafes, restaurants, and bars might not offer much beyond background music from a sound system, many venues go above and beyond to entertain their customers. But this can impact the insurance available in a number of ways:
Plus, insurers will require additional comfort and measures for higher-risk entertainment.
Special events or promotions
Events, parties, or promotions can attract a larger crowd than your venue may be used to dealing with. These higher numbers, combined with a lack of experience dealing with such situations, can stretch the business and increase the risk of incidents.
For example, a promotion at a small cafe or bar where door staff aren’t normally required could need a different approach if expecting a celebrity appearance. You may need to consider queuing systems, security, and emergency procedures.
High-crime areas with a particular reputation or local claim experiences of other hospitality businesses – like bar strips with heavier alcohol consumption – may be less attractive to insurers.
What’s more, if your location has a higher chance of natural disasters, it may be considered higher risk by insurers. Flooding is a common example – businesses within flood zones or next to waterways often have flood cover excluded or punitive terms imposed.
While it might be a more subjective area, insurers also consider past claims and incidents:
Insurance is often a numbers game, where the decision to insure and for what price is directly affected by the likely cost of claims and other expenses for any given year.
Simply put, a history of claims or incidents can make a business more high risk to insurers.
Some venues earn revenue from hiring their space out, usually staffed. However, in the instances you lease your venue without staff, you lose a great deal of the control and risk management to the hirer. This can cause all sorts of problems, from customers misbehaving, to greater difficulty obtaining evidence to defend legal actions.
If public hire is a likely revenue stream for your business, you should let insurers know. You’ll also need to put suitable hire contracts in place, which insurers might ask to see before agreeing to cover.
Does your venue serve food? How much cooking and how you cook is another risk factor. Any heat process increases the potential risk of fire.
If you own a restaurant, a full range of cooking is expected – including deep fat frying. Insurers are usually comfortable covering such risks for restaurant businesses with a well-maintained kitchen, plus appropriate extraction and fire protections in place.
Premiums are unlikely to be affected much in these instances, but there may be specific terms imposed depending on kitchen size and type. These might include regularly cleaning equipment or installing alarms or suppression systems.
Problems are most likely to arise when cooking somewhere not primarily designed for it – for example, a cafe or activity venue wanting to fry chips for additional income. It’s important that insurers are fully aware of your plans, and all information is provided. Again, they’re likely to impose terms depending on the size and type of cooking equipment.
The physical premises
Finally, your physical premise will be a consideration for the insurer. Its age, construction, and state of repair are also risk factors.
These factors might be clearly asserted in a Statement of Facts. But if that’s not the case, you would still have a duty to advise insurers of potential risk factors as they would be considered a Material Fact.
How can this affect my insurance terms?
Insurers consider risk factors when providing a quote for coverage, and higher risks may mean higher premiums and fewer options.
Higher risk businesses will typically have to pay higher premiums for their commercial insurance – and this is no different for those in hospitality.
This is because the insurance company views them as a greater risk for potential claims and losses – and it’s why late-night licensed bars and nightclubs generally have to pay significantly more premiums than cafes or restaurants.
Limited coverage options
Venues that carry out higher-risk activities may have fewer commercial insurance options to choose from as some insurers consider them too risky.
This also means those that do quote may provide a restricted level of cover. For instance, they may only be able to offer a lower Public Liability limit, so you might require excess liability policies.
Strict terms and conditions
Carrying out heavier activities or negative risk factors can be a concern for insurers. To offer a quote, they may need to apply specific terms requiring you to take certain actions or put protections in place – like a maintenance contract and regular fire alarm testing.
High-risk businesses may have to pay increased excesses in the event of a claim. This means that they will have to pay more out of pocket before their insurance coverage kicks in.
For example, a bar in a high-theft area might have a greater excess for break-ins or ancillary risks, like malicious damage and vandalism.
Risk assessment and management
Finally, insurers may require higher-risk hospitality businesses to implement and evidence risk assessment and management measures to minimise potential losses and claims – like regular safety audits, employee training, and using safety equipment.
Support from RiskBox
Hospitality businesses vary, and some are higher risk than others. When taking out a policy, it’s important to communicate with your insurance company and disclose all relevant information.
If you’re trying to find the right level of cover for your hospitality business, we can help. Get in touch with our team to find out more.
Agencies - September 25, 2023
Blog - September 11, 2023