Lockton warns of potential underinsurance risk in hospitality sector

As the hospitality sector gradually recovers from the impact of lockdowns and wider pandemic-related losses, businesses in the sector are urged to closely evaluate building reinstatement values to avoid being inadvertently underinsured. The risk is further exacerbated with rising inflation, according to Lockton.

“While the financial prospects for the hospitality industry have improved significantly due to rising demand this summer, businesses are at risk if the values insured are not adjusted appropriately to account for the sharp rise in inflation being felt across the globe,” the broker's head of hospitality, Andy Nicholson, said. “Inflation combined with scarcity of labour and building materials, are all factors which have changed the operating landscape for many businesses, and as a result, the amount and value of risk they have inadvertently taken on.

“Property damage claims are being hit particularly hard because of international shortages in timber, steel, cement, metals, and plastics. This, combined with a global shortage of shipping containers, is leading to the ‘perfect storm’ of significant delay and exorbitant international freight costs. An increase in housebuilding and infrastructure projects is also driving the cost of labour higher.”

Nicholson says all these factors are contributing to reinstatement projects running over time and budget.

“Ensuring underinsurance doesn’t pose any significant business disruption risks will be key in the remainder of 2022 when inflation is expected to only rise more. To do so, firms should conduct more robust reviews of building reinstatement values than in recent years, and consider appointing a third-party valuer to undertake a Reinstatement Cost Assessment.

"It’s worth also asking your insurance broker to review current policy conditions, ensuring they are fit for purpose and provide appropriate protection to help mitigate the potential for underinsurance.”

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