Specialty Lines Markets
Today's special: Soft market
Restaurants, bars and other hospitality markets make the best of what's on the menu
By Phil Zinkewicz
If the reader will permit a slight corruption of one of the most famous lines from the poet, John Donne: Ask not for whom the soft market tolls; it tolls for thee.
Everyone who has ever been in a soft property and casualty insurance market knows what such market conditions bring about. However, for the uninitiated (those who have only been in the business for four or five years), let’s belabor the obvious.
First, there is an increase in competition, with new players entering into specific lines of business that were profitable a year ago but which may not be profitable a year from now. Second, established carriers, fearful of losing premium dollars, begin lowering their prices, hoping that investment income will help them ride out the soft market. Third, for agents, lower prices mean lower commissions so, to make up for the lost income, they tend to move into areas with which they are unfamiliar. Finally, for insureds, lower insurance rates look good for a few years, until the soft market runs its course and they see carriers withdrawing from many lines of business, leaving them facing availability and affordability problems.
The hospitality industry—hotels, restaurants, bars and taverns, etc.—is currently in a soft market.
Matt Morgan is a retail agent, a young man who has been in the com-mercial insurance industry for 12 years. Five years ago, he started his own firm, the Houston, Texas-based Food & Beverage Insurance Agency.
“Premiums are way down,” says Morgan. “When that happens, there is the danger that insurance agents who are uninformed about the hospitality market sweep into the business and bring about severe market dislocations.
“They are sometimes inexperienced with contract wording,” he continues. “The uninformed agents don’t know about exclusions, for example, for assault and battery in restaurants. These are agents who have written, perhaps, two or three bars during their careers. I’ve written 4,000 policies, all of them bars, and I’ve quoted about 6,000.”
Morgan says that if new agents entering the hospitality business are ill-informed about coverages, many insureds are even more so. “I grew up in the business,” he says. “I was a bartender, a waiter and later a restaurant owner. I understand the business from both sides, as insurance buyer and as insurance agent.”
He continues, “I look at each restau-rant and bar exposure individually, and I know what questions to ask: What is the capacity of your establishment? Do you cater to a younger or older crowd? Do you have dancing?”
In order to better inform insureds, Morgan’s firm is producing a 12-page brochure that will detail coverages that are available in the hospitality arena and what exclusions to watch out for. “Price is such a driver in this market,” Morgan says. “We’re trying to move clients away from that kind of thinking.”
Heidi Strommen, executive vice president of ProHost USA in Minneapolis, says that more insurance companies have become interested in writing restaurant business in today’s soft market. “We’ve been writing fine dining and family restaurants since 1989 and we’ve seen it happen before. In a soft market, insurers have a greater appetite for the specialty line and then when the market hardens, they seem to disappear.
“One trend we’ve seen is that restaurants are becoming aware that they have exposures that go beyond the primary policy,” she says. “Therefore, they are looking for umbrella coverages. In addition, we’re seeing an increased interest in employment practices liability coverage, third party.”
Looking at the claims trends in the hospitality area, Lowell Fuller, managing director of the restaurant practice for Arthur J. Gallagher in Florida, is concerned about a relatively new phenomenon in the hospitality arena—the matter of tainted foods.
“We’re seeing an increase in tainted food supplies that result in food-borne illnesses,” he says. “There is not a lot of historical data yet, but it is a severity-driven exposure, and therefore difficult to price. We’ve all read about mad cow disease, tainted beef patties, and the recent problem with California lettuce. These are difficult exposures for restaurants, bars and catering places to control.”
Fuller continues: “When restaurants are sued for serving these products, very often the original suppliers of the food are already out of business. The insured’s agent should make certain that the restaurant’s liability coverage includes expenses for managing the crisis. That would include dealing with the media and informing the public of what has happened and what steps are being taken to rectify the situation.”
He says that the hospitality industry is also seeing an increase in employ-ment practices liability, including “hiring and firing discrimination, sexual harassment and third-party discrimination against the consumer.”
On the hotel side of the hospitality business, Rich Clark, managing director of Gallagher’s hospitality practice in Houston, says one phenomenon taking place is that coastal hotels are once again becoming attractive to insurers.
“Following the storms of 2004 and 2005,” says Clark, “hotels in coastal areas became extremely hard-to-place risks. But the insurance industry’s profitable years that ensued have caused a turnaround. The market for coastal hotels today is very soft. Workers compensation rates have dropped considerably in the last three years, for example, as has general liability. That’s true pretty much across the country.”
Finally, Fran Sarmiento, vice president with Venture Programs in Philadelphia, discusses her firm’s operations in the golfing, hunting and fishing industries. “We started out in the hospitality arena with a niche in the golfing industry,” she says. “Then we noticed there was a growing interest in hunting and fishing lodges with golf courses, particularly in the Midwest and places such as Colorado. So, we became involved with that.
“Of course, there are the usual catastrophe and earthquake exposures, but most of the liabilities associated with hunting and fishing are controlled through waivers,” Sarmiento continues. “One key exposure involves lodges that have animals on the premises, hunting dogs and the like. Lodges have to make certain they have the proper insurance for that. In addition, some lodges employ teachers or instructors for the hunters and fishers. Special employment coverage comes into play there.”
And what does Sarmiento say the market is like for golf clubs and hunting and fishing lodges? You guessed it. “Soft.” *