Hospitality Risk

7 Critical Risks Facing the

Hospitality Industry
Rapidly changing customer
demands and a boom in guest-
facing connected technologies are
among the factors changing the
risk landscape for hospitality
companies.
By: Michelle Kerr | August 2, 2018

Topics: Business Interruption | Cyber Risks |

Liability

Generational marketing gurus say that

millennials have ushered in the
“experience economy,” where live
experiences are valued more than material
goods — excellent news for the travel and
hospitality industries.

But thanks to this technology, millennials

also have different expectations about how
they should be engaged during those
experiences, and other generations have
caught on.

The hospitality industry has its work cut

out for it keeping up with customer
demands and changing technologies.

1) The Sharing Economy

Recent years have seen a spike in sites like
Airbnb, Homestay, HomeAway and
HouseTrip. Airbnb, with about 150 million
users, is the most significant threat.
According to a report by Morgan Stanley,
hotel cannibalization from Airbnb was
around 51 percent in 2017 and is expected
to increase to 54 percent in 2018.

More troubling for the industry’s future is

Airbnb’s popularity with college students
and millennials. This group places heavy
value on experiential travel, and the
sharing economy may represent for them
an experience more unique than a
traditional hotel.

2) Continuously Changing Consumer

Demands
Technology has dramatically changed the
nature of customer expectations and
raised the bar in terms of the type of
experience and engagement customers
consider the norm. This is a particular
challenge in hospitality, where reputation
and customer satisfaction is vital.

Consumers — particularly millennials —

have grown accustomed to customized and
streamlined shopping experiences,
whether it be a free gift on their birthday
or same-day delivery for online
purchases. Clean, well-designed guest
suites are no longer enough. In fact,
several hotel brands have taken the step of
branching out to boutique hotels that
specifically cater to the millennial ethos.

“Every major hotelier that has a viable

brand you’ve known for 30 years typically
has in their portfolio now a more limited
service or more millennial-driven type of
brand they’re building to attract a certain
segment of the marketplace,” said Michael
Drayer, CEO of the Global Entertainment
Practice with Aon Risk Solutions.

For the rest of the industry, keeping up

will require an investment in strategies
that will help them learn more

about their customers and design services

around them. In addition, more social-
media savvy is necessary for companies to
start thinking about how to offer a travel
experience that will motivate guests to
eagerly share on social media.

Perhaps because of the changing nature of

customer demands, maintaining customer
satisfaction has become more difficult in
recent years. Social media dramatically
exacerbates the risks, in an environment
where a single social media gripe by a
traveler, no matter how mundane, can
spread like wildfire and even be picked up
by local news outlets.

Customers demand multiple channels of

engagement with service and operations
personnel, in order to better connect with
customers before negative perceptions
have time to set in — and spread.

3) Shortage of Experienced
Personnel
According to the Bureau of Labor,
the leisure and hospitality sector
employed more than 15,000 people in
2016, and that number is projected to
jump to almost 17,000 by 2026. As the
industry continues to grow, staff will have
more options, both in and outside the
industry, and the poaching of experienced
personnel will become a competitive
sport.

Travel and hospitality companies must

identify and address wage and worker
satisfaction issues to keep their people
happy and motivated to provide the level
of service customers expect.

Finding the right people may be difficult

especially for small hospitality providers.
High-end luxurious accommodation
providers recruit trained professionals at a
high cost, which is an impossible feat for
low budget hotels.

Creative companies must focus on

referral-based hires and adopt retention
programs that help boost employee morale
and productivity, like mobile apps for
scheduling and benefits, and attractive
incentive programs.

Another key factor impacting worker

satisfaction is tips, said Drayer, a practice
that has been impacted by changing habits
and technology.

“The hospitality industry has always

[included tips] as an important part of
compensation for its customer-facing
individuals. But we’re moving more and
more to a cashless society. How do they
handle that? Do they support or even
provide the infrastructure to utilize
cashless apps and such as VenMo?”

4) Consumer Perception of Risk

Terrorist attacks, biological outbreaks and
incidents of political or social violence can
not only significantly impact specific
locations but can also have a more
widespread chilling impact on leisure
travel behavior across a region or even
globally.

What’s challenging for the hospitality

industry is that related losses are
impossible to predict and difficult to
insure against, particularly for companies
that suffer business interruption losses
without any property damage. Loss of
attraction coverage and certain newer
parametric products are a step in the right
direction, but potentially significant
exposures remain.

5) Uncertainty in International Travel

According to the U.S. Travel
Association, over 75 million international
travelers visited the U.S. in 2016, and that
number was expected to hit over 83

million by 2020. But recent drops in non-

resident arrivals are being attributed by
some to President Donald Trump’s travel
ban and immigration crackdowns.

That means hospitality companies are

facing a period of uncertainty, while still
needing to ensure they provide as unique
an experience for foreign travelers as for
domestic guests. Staff must be aware of
cultural differences and the particular
expectations any international visitors
might have.

6) Guest-Focused Technology
In addition to offering tablet-based kiosks
and mobile check-in, hospitality
companies are finding ways to incorporate
technology that improves operations and
enhances guests’ experiences. Hilton’s
“Connected Room” and Marriott’s
“Internet of Things” room are scheduled
to roll out by the end of 2018, offering tech
amenities such as digital keys and the
ability to use a smartphone to control
room temperature, lighting, TV and more.
Guests will even be able to swap out wall
art with family photos for a more personal
stay.

Of course, with this surge of connected

technology comes new levels of risk.
Vulnerabilities in connected devices raise
the risk of attackers unlocking digitally
keyed doors to steal guests’ valuables or
finding a path into hotel systems.

It seems like not a week goes by without a

hospitality client facing a ransomware
attempt, with attempts to compromise
reservation systems or operations systems,
said Drayer.

“The efficacy of the technology to open

and close doors and to utilize the different
systems that are web-enabled is an
extremely risky proposition these days.”

7) New Regulations
After several years of discussion and
debate, the Cal/OSHA Standards Board
recently approved a standard on “Hotel
Housekeeping Musculoskeletal Injury
Prevention.” The final regulation became
effective July 1, 2018.

Advertisement

The new regulations are comprehensive,

and potentially arduous for some
employers. Employers are required to
conduct regular worksite evaluations to
identify and address specific risks. They
must include an effective means of
involving housekeepers and their union
representative in designing and
conducting the worksite evaluation.

Employers must establish procedures for

investigating musculoskeletal injuries to
housekeepers and correcting such hazards
identified. A formal training program is
also required and must be refreshed
regularly. All documents related to the new
standard must be kept as well.

For California hospitality businesses, this

development could be a game-changer and
require extensive modification to current
practices. For those outside California,
this development is still worth monitoring;
not only does it establish standards to
consider adopting independently, but it
could also be a sign of things to come in
other jurisdictions.

“Regulation typically starts in California

and moves east,” said Drayer. “So even
though this is only currently affecting our
clients in California, it’s going to be
coming soon to a theater near you.” &

Michelle Kerr is workers' comp editor for Risk

& Insurance. She can be reached at
[email protected]

Share this article!

https://riskandinsurance.com/7-critical-risks-facing-the-hospitality-industry/

CLICK TO COPY

! Share " Tweet # Share

More from Risk & Insurance

3 Ways Emotional Intelligence Helps You

Succeed
Claims in the
handling can Insurance Workplace
be a particularly emotional time.
Displaying emotional intelligence, or being able to "read the
room," is an important trait to possess in insurance.

Stop Bashing the Aviation Industry. Risk

Managers
Regulators Can Learn
grounding an Important
the Boeing Lesson
737 Max until the root
FromofIts
cause the Response to the
plane's operational Boeing
failure Crashes
could be identified
is an imperative lesson in risk management at large.

Sponsored Content by BHSI

Partnering Through
Turbulent Times:
Weathering a Difficult
Insurance Market,
Together
Health care providers and their
insurers are being tested by an
unprecedented frequency of
severe liability claims, but working
together can strengthen any
partnership.
By: Berkshire Hathaway Specialty Insurance |
November 1, 2019

The most effective and enduring partnerships

share successes and weather challenges.
Today, healthcare providers and their
insurers find their partnerships tested by an
unprecedented frequency of severe liability
claims. Leo Carroll, Head of Healthcare
Professional Liability at Berkshire Hathaway
Specialty Insurance (BHSI), shares his
perspective on the shared challenges of market
conditions and how working collaboratively
on solutions can strengthen partnerships even
in difficult times.

The last three years have produced an

unprecedented rise in judgments against
health care providers, with severe verdicts
rendered far beyond the traditionally
difficult venues like New York City,
Philadelphia, Chicago and Miami. As
troubling, during the same period of
reported claim activity (2011-2014), the
number of judgments are rising steadily at
every level measured: Above $5m, $10m
and $15m. In other words, severity activity
appears to have moved well beyond an
occasional shock loss or ‘runaway verdict,’
but rather a sustained escalation in the
number of large value claims.

This persistent and troubling trend has

created challenges for health care
providers and their insurers. After several
consecutive years of underwriting losses
as measured by combined ratios above 100
in the medical liability industry segment,
insurers continue advancing corrective
actions. With diminishing reserve
redundancies from prior years, the
pressure has increased to address poor
underwriting results produced by
unrelenting severity. Global, national,
regional and mutual carriers are
substantially reducing capacity or exiting
the health care market segment altogether.
The years of surplus capacity is winding
down. Brokers and health care providers
are facing difficulty renewing existing
limits, and pricing on renewal options
reflects worsening severity.

Consequently, health care providers

nationwide face the prospect of renewing
programs with significantly increased rates
and altered terms and conditions.
Coverage provisions may vary by layer,
both on excess programs and within
captive reinsurance structures. Some
buyers may struggle to secure
commitment to large limit towers (>
$150m) due to shrinking appetite among
carriers for large limit higher-excess
placements at minimum premiums.

On the surface, market dynamics have the

potential to create friction between
insurers and insureds at renewal,
particularly in the absence of effective
dialogue.

Effective Partnering: A Collaboration

Among Providers, Brokers and Insurers

Leo Carroll, Head of