Managing expectations in a market turn

Managing expectations in a market turn

Insurance prices are hardening, but hospitality businesses shouldn’t fear the worst, writes Robert Smith, Underwriter at Trilogy MGA LTD.

For leisure and hospitality businesses emerging from the pain of pandemic lockdown, the rising price of insurance is probably the last thing they want to hear. We’d like to clarify a few things, because clients should not expect to pay a great deal more this year, particularly when they’re feeling the pinch more than ever.

Yes, the cost of insurance is rising. Rates on the same risks have risen by around 5% on average, and can in some cases be as much as 20% higher than previously. However, for many insureds, they may avoid paying more in absolute terms, because their insurance needs may have changed since Coronavirus struck.

We believe underwriters should recognise that insured businesses are not the same pre and post lockdown, particularly in the leisure and hospitality sector. For example, pubs and restaurants are opening at 50% capacity. Gyms are only offering some of their previous services. Events venues can’t welcome crowds as before.

Painful decisions have in many cases been forced upon hospitality firms to make redundancies. In other cases, some workers are still on furlough and not needed while capacity is so low. This has led to reduced staff head counts and falling wage bills for many hospitality businesses.

Broader changes, not least the lockdown closure of many businesses, but also now the new lower customer capacities, have led to a decline in revenues, in some cases very abruptly and in others gentler, meaning that the overall sum insured will have fallen for many businesses.

From an insurance context, the benefit to small businesses from this is that they may find themselves paying less than before in absolute terms, despite an overall rising tide of insurance rates.

From an insurer’s point of view, line sizes will have reduced and less risk is being taken for a premium which, after several years of soft and, from an underwriter’s perspective, inadequate risk-based pricing.

Renewals this year will be a more intensive process than usual. Our clients are contacting us earlier and taking longer to negotiate before agreeing a new policy for the coming period of economic recovery.

We are seeing many of these policies adjusted and reworded, whether temporarily while businesses get on their feet, and into the medium term to ensure that clients have the right insurance protection in place, and are not overpaying in relation to the changing dynamics of their own businesses and the ‘new normal’ as the economy begins to get back on track.

All of this means it’s more vital than ever to listen closely to clients, to understand their needs, cater to them, and show willingness to be flexible in the policies we create.

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