Hospitality businesses in tight spot as insurers flee

TORONTO • Canadian hospitality businesses, already reeling from the downturn sparked by the coronavirus, are facing yet another existential threat as insurance companies spike premiums or exit the space, citing losses and the sector's risks.

Even before COVID-19, insurers globally were scaling back from riskier businesses to improve performance. The pandemic's profit hits have accelerated the trend and led underwriters to exit from, or raise premiums in, select categories.

Hospitality businesses, particularly those needing coverage for accidents caused by alcohol-impaired clients, were already seen as higher risk, said Karen Ritchie, vice-president at Baird MacGregor Insurance Brokers and president of the Toronto Insurance Council. The coronavirus exacerbated that.

“It's a perfect storm,” she said.

Many hospitality companies were already operating on razor-thin margins before pandemic-driven lockdowns. An inability to access affordable insurance could spell the end for them, given they are barely hanging on amid distancing restrictions.

While these businesses carry the same risks as elsewhere, the Canadian hospitality industry faces a bigger hit due to a much smaller insurance market dominated by Lloyd's syndicates, Ritchie said. Far more domestic insurers cover the space in countries like the U.S., spreading out risk, she said.

Lloyd's is a marketplace that comprises various specialist insurers, or syndicates, who write policies.

Lloyd's business volumes fell 8.6 per cent in the first half of 2020, reflecting an intentional reduction by several syndicates exposed to poorly performing business segments, the group said in a statement.

The Lloyd's market lost 438 million pounds (US$569 million), versus a 2.3 billion pound profit a year earlier, primarily driven by coronavirus-driven losses.

Erik Joyal, co-owner of Ascari Hospitality Group in Toronto, was told last month that his Hi-Lo Bar's policy would not be renewed as his insurer, part of Lloyd's, was moving away from restaurants and bars.

His broker found a policy through another insurer at more than three times his current $9,000 annual premium, even though the restaurant had never filed a claim.

“I would close the business before I signed on to that,” said Joyal.