From the smallest boutique hotels to the grandest of resorts, the hospitality industry’s priority is always the guest’s comfort and satisfaction. Amidst this steadfast pursuit, risk management and insurance are often relegated to the background — until moments of crisis. However, the dynamics of the insurance market are changing, leading many forward-thinking hospitality businesses to explore alternative insurance funding models.
NAVIGATING THE CHALLENGES OF TRADITIONAL INSURANCE
For years, the hospitality sector has thrived on exceptional service and a reputation for making the impossible happen. Yet, the volatile nature of traditional insurance industry and the perception of higher risk within the hospitality sector create complex challenges, including:
- Rising Premium Costs
- Coverage Gaps and Limitations
- Market Cycles and Uncertainty
THE EMERGENCE OF ALTERNATIVE FUNDING MODELS
In response to the inflexibility of traditional insurance, alternative funding models are gaining traction within the hospitality landscape. These models offer increased control, customization, and long-term stability, often at a lower cost over time.
Self-Insured Retention (SIR)
Hospitality businesses can opt for SIR, where they pay a predetermined amount for any given claims scenario and align their insurance strategy with their financial capacity.
Group and Pooling Arrangements
Pooling arrangements allow multiple hospitality businesses to spread their risks across a larger participant base, thereby potentially reducing individual businesses’ premium levels and stabilizing expenses.
Captive Insurance
By retaining underwriting profits and investment income, captives can lead to long-term premium stability, effectively managing the business’s overall cost of risk. Successful captives can yield underwriting profits, which fuel growth, risk bearing, and potentially provide for better capitalization against catastrophic losses.
Risk Retention Groups (RRGs)
RRGs provide an avenue for like-minded hospitality businesses to come together and form an insurance entity, exerting greater control over the scope and cost of insurance coverage. Members in RRGs have a say in the claims process, which can lead to cost containment.
STEPS TO IMPLEMENT ALTERNATIVE INSURANCE IN HOSPITALITY
Transitioning to alternative insurance funding models like captives and RRGs requires a deliberate and strategic approach that considers the unique needs and circumstances of each hospitality business. Steps include:
- Conduct a Comprehensive Risk Assessment to gauge the breadth and depth of the risks the business faces
- Project potential savings, examine investment costs, and outline the management structures that would oversee the new insurance entity
- Once the decision to move forward is made, ensure compliance with regulatory requirements
- Manage the day-to-day operations of the new insurance vehicle, including the intake of risk, underwriting, claims management, and financial oversight
- Take a proactive and agile approach to risk management, including continuous risk assessment, claims analysis, and adjusting insurance strategies as the business evolves
HOW KAPNICK CAN HELP
The hospitality industry faces a myriad of risks, from guest safety to natural disasters. In this environment, the traditional ‘one-size-fits-all’ insurance approach is no longer adequate. By exploring and implementing alternative insurance funding models, businesses in the hospitality sector can:
- enhance their risk management strategies
- gain greater control
- improve financial performance
It’s an opportunity to not just safeguard the present, but to fortify for the future — ensuring that the timeless tradition of top-tier hospitality can continue to unfold without pause, hiccup, or unexpected bunkers in the road.
To fully capitalize on the potential of alternative insurance funding, hospitality businesses must be proactive, thorough, and strategic in their approach. This is where collaboration with insurance experts like Kapnick can play a pivotal role, guiding businesses through the intricacies of innovative risk management solutions.
For more information on how Kapnick can help, reach out at info@kapnick.com or 888.263.4656.
