Rolling the dice

Risk & Insurance, August, 2004 by Mindy W. Toran

The variables "in play" in the hospitality sectors--the bottle, the bed and the steak filet--mean management had better be prepared to make some careful bets. Throw in a poker game or two, and it's not hard to see how easily the odds can swing against you. The most astute hotel, casino and resort managers have at least two traits in common. They always know "when to hold 'em" and "when to fold 'em."

Running a hotel, resort or casino is no joke. With guests going in and out 24 hours a day, hundreds of employees and properties located in hurricane and earthquake-prone areas, mitigating risk is a huge undertaking. Something as simple as a power outage---such as an incident recently experienced at the Bellagio Hotel and Casino in Las Vegas--can result in big business interruption exposures, not to mention grumpy guests and gamblers.

"There are constant challenges, but [hospitality] is one of the most exciting industries in which to work," says Lance Ewing, vice president of risk management at Caesars Entertainment in Las Vegas. For Ewing, the industry became even more exciting when Harrah's announced in July that it would buy Caesars Entertainment Inc. in a transaction valued at $9.44 billion. (Under terms of the agreement, Caesars shareholders will receive an aggregate of $1.8 billion in cash and 66.3 million shares of Harrah's common stock.)

Safety and security, workers' compensation exposures, property damage, employment practices liability and fleet safety are all major concerns for the hospitality industry.

"When you have food, alcohol and beds all in one location, it adds up to big risk," says Tom Cleary, vice president of hospitality at Acordia, the Clearwater, Fla.-based insurance broker.

As a guest, you want to feel safe and have an enjoyable experience when visiting a hotel, resort or casino. In order to make your stay as comfortable as possible, there are numerous issues "behind the scenes" on which owners of hospitality venues need to focus.

Protecting employees is a key area of concern. On the workers' comp side, they are exposed to slips and falls, lifts and strains, kitchen accidents and, at larger resorts, issues of engineering and landscaping. Because housekeeping and room service employees are typically low-wage, low-skilled workers, hotels and resorts often face a high turnover rate. That ultimately means more claims.

From a general liability perspective, hotels and resorts are frequently dealing with frivolous claims, guest damage to property, theft and robberies, risks associated with pools, beaches and other water features. Resorts also have to protect themselves from exposure to risks from food-borne illness.

On the property side, business interruption is a huge issue. "Many large, higher-end resorts are located in tough areas to place business, such as earthquake and hurricane-prone zones, ski resorts and beach resorts," says Cleary. No matter where a property is located, it's important to identify what the inherent risks are and where claims are coming from in order to implement appropriate programs to mitigate potential losses.

RENEWED ATTENTION TO SAFETY AND SECURITY

"The attention given to security by the hospitality industry reached an all-time high shortly after Sept. 11," says Janice Schnabel, senior vice president and national hospitality practice leader at Marsh in Portland, Oregon. "While security has always been a major concern for the industry, we saw more properties contracting with outside security personnel, enlisting the help of off-duty police officers and more structured in-house security programs."

Because terrorism is a major concern for hotels in high-risk areas, many chains and resorts have begun working with federal, state and local law enforcement to address building operations and security strategies, says Kevin Maher, vice president, governmental affairs, at the American Hotel and Lodging Association in Washington D.C.

"We have formed partnerships with the U.S. Department of Homeland Security and real estate interests to share industry-specific information and concerns such as how hotels can better manage the flow of people and baggage in and out of their properties and long-term strategies to keep properties and patrons safe," he says.

Terrorism is also a major concern from a workers' compensation perspective. "If something happens and employees are injured on the job as a result of a terrorist event, we're at risk," says Gerald Beauchamp, vice president of risk management at Dallas-based Wyndham International. While it's impossible to determine where or what type of losses could occur from a terrorist attack, hotels can take certain measures to mitigate potential losses.

Having a specific emergency response plan and testing it on a regular basis is extremely important. Business continuity plans, emergency evacuation plans, fire protection systems and security plans should all be in writing and put into practice on a regular basis.

LOS-PREVENTION INCENTIVES

Workers' compensation has always been a major area of concern for the hospitality industry. "Employee turnover is a huge part of what drives 'workers' comp costs, and the hotel industry typically has about a 160 percent turnover rate, which makes it a major concern," says Schnabel. "Many properties don't spend a lot of time on training because employees don't tend to stick around, so safety isn't built into the employee culture." But hotels that do focus on loss control can have a significant impact on workers' comp costs and claims.