Canadian Underwriter

What brokers should be telling their hospitality clients

December 2, 2020   by Adam Malik

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Brokers are having some frank conversations with clients in the hotel and restaurant business about the realities they’re facing and how to survive the troubles ahead, says a hospitality broker leader.

“The truth is that if anybody is going to fool their clients in any way by saying, ‘Hey, things are going to be okay,’ that’s not the way to go,” said Karim Chandani, Vancouver-based Hub International vice president of hospitality.

The crux of the issue, he observed, is that insurers are businesses just like those in the hospitality sector. Carriers are not making money due to the rising frequency and severity of claims, he told Canadian Underwriter. “So just like they’re trying to keep their restaurants and hotels profitable, insurance companies are trying to stay profitable.”

It’s the broker’s job to work with their clients to figure out a way around this roadblock, Chandani said. “Because there’s one thing I can guarantee: You have less revenue. Your restaurants in Toronto are closed now, for the most part, and your price for insurance is going up. And that is not a good situation for that owner.”

Creating a three-year plan with clients is his main priority. “This is where brokers need to focus on how we best help our clients,” he said.

Why three years? Short-term forecasting is the biggest challenge right now. No one knows what’s going to happen even within the next six months. But, as Chandani pointed out, he’s finding that more experts agree that business in the hospitality sector is expected to come back sometime in 2024.

“There’s not a lot of confidence,” he said, explaining why business won’t return until sometime around the mid-2020s. “Everybody’s waiting for a vaccine. And then you’ve got, potentially, not everybody wanting to take a vaccine — maybe one-third of us. People have also changed their habits. Perhaps they’re eating more at home now. Maybe they’re eating healthier. This has been a change that is going to take a while to evolve.”

He asks clients for their revenue forecast, because there could be some savings when it comes to liability. A bar may not be selling as much alcohol as it did before and that opens up areas to save on insurance.

“When their food and liquor revenue is down, that is going to have a direct impact on what the price of insurance is going to be,” Chandani said.

He also recommends taking a look at clients’ deductibles. At a minimum, they should be somewhere between $10,000 to $25,000. Clients need to take a percentage of risk in their own business, Chandani said. Putting in small claims of $25,000 or $50,000 is not smart business.

“It will come back to bite them,” he warned. “You should not be putting in these small claims because it’s going to cost you in the long run.”

What else can a broker do to help their clients? Get talking to them much earlier on in the process. “What I mean by that is, we can’t come to them as a broker at the last minute,” he said. ” You have to be out…four months, five months before [the usual time] to market because things are getting more and more challenging.”

It used to be that properties were not marketed for property insurance every year, he said. But now that’s happening because insurance companies are reducing capacity. “So that is creating more work for underwriters. They can’t keep up, so things are taking longer.”


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5 Comments » for What brokers should be telling their hospitality clients
  1. Eric+Lapenis says:

    Consumers in locally based hospitality businesses should choose to deal with a Canadian based insurance broker that re-invests in the local communities and people, not a multinational like HUB that siphons profits back to Chicago. Buy local.

    • Steve Wallmer says:

      Hi Eric,

      Hub was founded in Canada and still employs more Canadians than any other brokerage in the country. Yes we have grown and our head office has moved. But we retain a large local presence in 100’s of communities and we are all proud to support Canadian business, now more than ever.

      • Eric+Lapenis says:

        My only question is where do the profits go? They’re shipped back to the USA.
        The fact that a company was founded in Canada means nothing when ultimately the money is leaving the country.

  2. Peter says:

    1. Brokers should be contacting their clients at any time through the year, not just in the lead up to renewal, regarding material changes or developments both within their business sector and within the insurance industry. A critical matter in current times, it is nevertheless a standard to be adopted. No “renew and forget” practice.
    2. As to deductible, Chandani states “Putting in small claims of $25,000 or $50,000 is not smart business.” I’m a bit amazed at that statement. Take the Food Services and Drinking Places sector in 2019. According to Canadian Govt. data, there were approx. 96,000 establishments with an average Gross Revenue of approx. $675,000. Net Profit averaged 4% across the group, yet the bottom quartile (25%) returned a Net Loss of 13%. My point is : a $10 – $25,000 deductible is tough for so many, and in no measure can a claim for $25 – $50,000 ever be considered “small”.

  3. Ali A says:

    good points delivered. thank you.
    the deductible of $25K and $50K are way too high to be absorbed by a small business. $10,000 is the highest I would let my client to set as deductible on their policies unless they have a couple of hundred thousands dollars sitting in their bank account doing nothing.

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