Emerging after an unprecedented downturn
Labor 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:
- Labor 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 a return to indoor mask mandates in many areas.
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 — as long as 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 third of former hospitality workers won't consider returning to the industry.1
The shortages are pushing restaurants to restrict hours, increase wages and offer signing bonuses, even with entry-level jobs: McDonald's, for one, has raised pay levels 10% at corporate-owned restaurants in an effort to hire 10,000 workers.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 labor shortage as well, though to a somewhat lesser degree. Measures such as cutting back on housekeeping services has 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. Many states are considering new presumption rules that would allow claims that assume an infectious disease was contracted at work. As a result, hospitality businesses will focus on improving working conditions not only to attract workers but reduce risk in the process.
1 Business Insider, “A third of former hospitality workers won't return to the industry during the labor shortage because they want higher pay, better benefits, and a new work environment,” July 8, 2021.
2 CNBC, “McDonald’s raises hourly wages for company-owned restaurants,” May 13, 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, 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 156% year-over-year in travel and leisure businesses; the sector had 13 major cyberbreaches in the last three years alone.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 SmartBrief, “How the travel industry can fight back against cyberthreats,” August 18, 2021.
2022 US Hospitality Insurance Market and Rate Report
Understand what to expect in advance of your next renewal.
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 hotels — and hotel revenue from business travel is expected to drop an astounding $59 billion in 2021 compared to the pre-pandemic levels of 2019.4
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 travelers to stay longer at the hotel.
As a result, the industry’s nightly revenue per available room during the summer met or exceeded pre-COVID levels in 70 markets.5 On a year-to-year basis, it’s still at 60% of 2019’s highs, but much of the industry has entered recovery mode.6
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 HospitalityNet, “Report: Hotels Projected To End 2021 Down $59 Billion In Business Travel Revenue,” September 15, 2021.
5 HospitalityNet, “U.S. Market Recovery Monitor,” June 19, 2021.
6 HospitalityNet, “Growing Occupancy, Profitability Pave Hotels’ Path to Recovery,” August 25, 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. Heat and drought add to wildfire risks, with three of the top five years for burned acreage occurring since 2015.7 That's not to mention the damage brought on by hurricanes, floods and hail.
Claims driven by weather in the U.S. 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) modeling is also an important part of risk management, as it helps identify where weather-related catastrophes are most likely to occur. Leveraging CAT modeling can help hospitality businesses tell a compelling risk management story to underwriters.
7 Resources for the Future, “Wildfires in the United States 101,” July 30, 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, labor 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.