Emerging after an unprecedented downturn
Labour shortages and the continuing effects of COVID-19 dominated the hospitality industry in 2021. However, 2022 is shaping up to be far more fulfilling — and profitable — as the industry figures out how to fulfill customer expectations without compromising safety.
Owners and operators of bars, restaurants, hotels and associated businesses will become stronger through vigilant risk management.
To cope with heightened risk, underwriters are putting hospitality businesses under a microscope
For hospitality businesses, it has been daunting to navigate through a global pandemic. The issues that caused such a downturn are still hurting the industry:
- Labour shortages abound at restaurants and hotels.
- Business travel remains substantially below 2019 levels.
- Increased reliance on technology has helped improve operations but increased cyber risk.
- The delta variant of COVID-19 has resulted in stringent indoor mask mandates in many areas.
- Vaccine mandates in many provinces added a level of complexity to reopening restaurants, requiring employers to train workers to deal with frustrated customers.
These issues have had a tangible effect on risk management and insurance. Underwriters are making more on-site inspections, while checking social media reviews of hospitality businesses to check for risk.
Insurers are closely looking at restaurants’ ability to deal with rising alcohol sales and determining if hotels are taking full measures to combat COVID-19, as many promote staycations to boost occupancy.
However, creative solutions that include technology, marketing and enhanced employee benefits can have a major positive impact on the hospitality industry — if owners and operators are cognizant of and have the ability to manage the risks.
Here's what to expect in hospitality in 2022:
Even with a huge number of vacant positions, protecting employees will remain the risk management priority
Hospitality businesses will improve working conditions to attract workers and reduce risk
1. The industry will offer higher pay, improved benefits and better working conditions
The worker shortages that have hurt the industry since the outset of the pandemic aren’t abating: a quarter of a million Canadian hospitality workers have permanently left the industry.1
The shortages are pushing restaurants to restrict hours, increase wages and offer signing bonuses, even with entry-level jobs: Chipotle, for one, is paying at least $15 an hour in Ontario and $16 an hour in British Columbia, as well as offering expanded career opportunities.2 Some employers are offering benefits like limited health care and underwriting college tuition to attract new employees.
Hotels are feeling the effects of the labour shortage as well, though to a somewhat lesser degree. Measures such as cutting back on housekeeping services have alleviated some of the pressure. Technology also continues to fill a gap; mobile apps and chatbots, for example, allow guests to self-serve on more services than ever.
Protecting employees will remain the priority. Employers should monitor potential disruptive changes to workers’ compensation insurance in each province. As a result, hospitality businesses will focus on improving working conditions not only to attract workers but reduce risk in the process.
1 The Monitor, “Tipping point: Pandemic forced restaurant and bar workers into better paying jobs,” October 13, 2021.
2 Hospitality Technology, “Chipotle Increases Minimum Wage in Canada,” August 16, 2021.
The industry relies on technology more than ever, creating urgent cybersecurity issues
2. Technology deployment — and cyber risk — will increase
Hospitality’s dependence on technology is growing, but it’s a double-edged sword.
Technology is transforming point-of-sale systems and improving sales, inventory and cash flow. It has also proven to be an excellent means to provide employee training.
Without the ability to physically serve customers, many restaurants relied upon technology to survive, through delivery apps and ghost kitchens, turning their sit-down operations into delivery powerhouses.
But the reliance on technology brings risk. Malware, phishing and other cybercrimes are common. In the second quarter of 2021, attempted online fraud rose 216% year-over-year in Canadian travel and leisure businesses.3
Organizations need to put safeguards in place, from firewalls to employee training. They also should talk to their insurance broker to ensure they have adequate cyber insurance coverage. Jumps in claims, especially for ransomware, have tightened capacity and are likely to raise rates 20% or more.
3 Global Newswire, “Fraudsters in Canada shift focus to travel and leisure,” September 8, 2021.
In lieu of business travel, hotels have turned to creative solutions
3. Hotels will need business travelers to recover completely
A full recovery in lodging? Thy name is “business travel.”
Business travel drives an inordinate amount of the hospitality industry, particularly for hotels.
Large business meetings and conventions have slowed to a trickle for the foreseeable future. To attract business meetings, hotels have tried turning themselves into a hub from which events and local travel extend, instead of keeping everything within the hotel. Combining business with pleasure is another successful angle, creating packages that encourage business travellers to stay longer at the hotel.
As a result, August brought the industry’s best performance since the pandemic hit, with occupancy levels the highest they have been since October 2019.4 With relaxing COVID restrictions and the reopening of the land border with the U.S., much of the industry has entered recovery mode.
The creative strategies have helped with some recovery but have risks of their own, and hotels still rely upon high levels of business travel. Business income coverage is expected to rise 10% in 2022, with carriers tightening terms and seeking rate increases.
4 Hospitality Trends, “STR reports August 2021 occupancy and REVPAR levels were the highest in Canada since October 2019,” September 22, 2021.
CAT modeling will join traditional risk-mitigation strategies to help keep rates in check
4. Climate change-driven weather events will affect hospitality operations
The escalating number and impact of weather-related catastrophes are affecting every industry, hospitality not the least. Property-casualty rates for both restaurants and lodging establishments are rising as much as 20%.
Extreme weather disrupts operations, raises costs and reduces leisure travel and tourism. Extreme heat and drought add to wildfire risks, and halfway through 2021, the wildfire season was the worst since 2017.5 That’s not to mention the damage brought on by other natural disasters.
Claims driven by weather in Canada are higher than expected, resulting in a hard market with limited capacity. The best risk management approach to keep property rates in line has been to focus on water mitigation and minimizing interior damages.
Today, catastrophe (CAT) modelling is also an important part of risk management, as it helps identify where weather-related catastrophes are most likely to occur. Leveraging CAT modelling can help hospitality businesses tell a compelling risk management story to underwriters.
5 Global News, “A look at Canada’s wildfires in numbers and graphics over the decades,” July 21, 2021.
Moving forward in 2022
The COVID-19 pandemic remains the industry’s biggest obstacle to recovery. Owners and operators have found ways to attract customers through marketing, tech investments and adherence to safety measures. But even those businesses that are doing well are still challenged to find workers to keep operations at full throttle and expand.
The challenges before the hospitality industry will remain formidable in 2022. The pandemic, labour shortages and weather-related disasters aren’t going to disappear, nor will cybercrime. Proper risk management and the right insurance protections will be key in separating successful hotels and restaurants from those that struggle. A trusted advisor — a good insurance broker — will help hospitality businesses seize opportunities that competitors can’t.