Thursday, December 2, 2010

Insurance for Pubs and Hotels

Industry Insider: Patrick (Pat) Walsh

Hi Pat, you’ve been an Insurance Broker since 1964, how much of that time has been devoted to working with Pubs and Hotels?

The lot of it – nearly 47 years now.

Wow!  So, over the last 47 years in the industry, what have been the most significant changes?

The industry has changed dramatically since I began. Probably the biggest catalyst for change was the introduction of Poker Machines and Restaurants into local pubs and hotels. It wasn’t simply the fact that they were popping up in nearly every pub and hotel you visited; it was the steep rise in the income of these businesses, which in turn, allowed them to greatly improve the decor, entertainment and security of their venues turning them into places the general population actually wanted to be.

So over a relatively short period of time, places that used to be quite seedy, rough and very male dominated, began to see their customers bringing along their girlfriends or wives. Then of course it wasn’t long before kids meals were on menus in the restaurants and there were play parks were being built in beer gardens. This really was really quite a radical change.

Amazing! So how did this change affect the insurance industry?

Well as a result premiums went up of course and so those providing insurance broking to pubs and hotels benefited with higher commissions. Most of this increase was relative, simply due to the fact that the values of the property insured had gone up, and the insured profits were much higher. 

As a publican in this day and age what should you be insured for?

As a rule I prefer to meet with pub or hotel owners to assess their individual risks prior to making personalised insurance recommendations. However, generally speaking, to protect your average Pub/hotel business adequately, you really should have the following policies in place:

Industrial Special Risks

An industrial special risks policy can cover a number of risks depending on the options selected – yours should at least cover you for;
  • Fire
  • Loss and/or damage to buildings, contents and stock, unregistered vehicles and the property of directors and employees
  • Business Interruption: Loss of profits, revenue and/or increased expenses caused by damage to insured property and also by contingent damage to property at the premises of suppliers, customers and utilities and extra costs for re-instatement, re-writing of records and professional fees
  • Burglary, theft of money and stock/contents
  • Accidental damage
  • Removal of debris
Public Liability

Your pub/hotel has a duty of care to the public. In a pub/hotel environment where alcohol and entertainment such as live bands/nightclubs are present Public Liability proves to be one of, if not, the most important policy you will hold.

A quality Public Liability policy should provide the following cover for all your business activities:
  • Provision and co-ordination of a defence from claims made against your business
  • where your business is deemed negligent provision for payment of costs and damages including compensation for bodily injury or property damage that are awarded against you.
Management Liability

A management liability should cover the directors and officers for:
  • Representation costs where a director or officer is legally required to attend an inquiry or investigation relating to the affairs of the corporation
  • Legal costs and expenses in the defence and investigation of a Directors & Officers claim
  • Any compensation required to be paid by the insured in order to dispose of a directors and officers claim.
  • Claims that can be brought against Directors and Officers are too numerous to list but they include things like wrongful dismissal, wrongful failure to employ or promote, harassment of employees, claims from statutory bodies and claims from the corporation itself (ie. From a liquidator on behalf of the company alleging insolvent trading).
A management liability policy should also cover the business against:
  • Theft by employees (Fidelity guarantee)
  • Directors and Officers liability claims
  • Unfair dismissal and sexual harassment claims
  • Representation costs in respect of an occupational health and safety investigation
  • Then, there are also Workers Compensation, Machinery Breakdown (Motor Burnout) and Food Spoilage which are all pretty self explanatory.
There are so many different risks to cover, what can business owners do to keep their insurance costs down?
  • To reduce insurance costs your business should take steps to proactively reduce the risk of a claim, therefore the insurer will assess you as a lower risk and consequently provide a lower premium. Some examples of steps you can take include:
  • Installing time delay safes to hold any cash on site
  • Installing fire alarms, smoke detectors, fire sprinklers and having an up to date and practiced emergency evacuation plan.
  • Installing Back to Base alarm systems and providing panic buttons in case of emergency situations.
  • Providing security guards both within your venue and on the outside.

There are also other factors that can influence your premiums these include:
  • Having major entertainment like a popular bands performing live, or running a nightclub within your venue, will increase your public liability insurance costs.
  • a poor claims history, as this makes you appear as a higher risk to the insurer.
Are there any common traps you find business owners tend to fall into when it comes to insuring their Pub/Hotel?

Probably the most common issue I come across is underinsuring for Business Interruption (Loss of Profits).  This insurance forms a part of your Industrial Special Risks policy and covers you in the case of specified events like fire, explosion, earthquake etc. for the profits you lose while you are getting your business back up and running.

Most people will have this cover included in their Industrial Special Risks Insurance Policy, but the business owner has the option of specifying a length of time this cover will pay for, and what I often come across is people who have covered themselves against lost profits for maximum periods of 12 months or even less not believing that they could possibly be down for any longer.

If you think about this seriously, should your venue burn to the ground, how long would it take you to:
  • have it inspected (by Arson Squad etc.)
  • cleanup site and remove the debris
  • have new plans drawn up for the new building by an architect
  • submit plans to council
  • gain approval (generally after a number of revisions)
  • engage a builder
  • completely fit out and furnish your venue ( including: kitchens, bathrooms, air conditioning, security and alarm systems etc), and then
  • have everything including your staff ready re-open?
In my experience with clients who have been through these situations in the past, anything under 18 months is not realistic. I will generally recommend 2 years worth of cover to all my clients. 

Thanks for your time Pat – lastly, how can people get in touch with you for more information?
They can contact myself (Pat Walsh) or another of my colleagues Nathan Brown, who is also an experienced Insurance Broker in the Pub/Hotel industry, at Coverforce Insurance Broking on 02 8814 4753.

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