This article was created in partnership with SUM Insurance.
The hospitality sector has always been one of the most dynamic and demanding classes for insurers. But in the years since COVID-19, the risks have evolved faster than many anticipated. From staffing challenges and inflationary pressures to volatile market cycles, it’s a case of constantly evolving or risk mounting liabilities.
Speaking to Insurance Business, Dan Lopes (pictured), vice president of commercial general liability at SUM Insurance, explained that the greatest shift in the sector is seen in the people - specifically who’s working behind the bar and on the floor.
“The biggest thing I've noticed is new staff. I see a lot of younger servers who probably don't have as much experience,” he said. “From a service perspective, things might be a little slower - but from a liability standpoint, if you have more inexperienced staff members you could have more exposure.”
As Lopes explained, this lack of experience could manifest in overservice, serving individuals who are already inebriated additional alcohol by not recognizing when somebody has had too much to drink. There could also be issues around health and safety while cleaning floors or using certain hazardous products or moving heavy barrels - all of which could lead to hefty fines or even lawsuits.
In wake of such a shifting risk landscape, SUM’s approach is designed to reflect these real-world conditions more accurately than traditional rating models.
“The biggest differentiator with our hospitality program is that we rate on the number of drinks sold versus the pure revenue,” explained Lopes. “Revenue isn't always a determining factor on foot traffic - especially because liquor prices have gotten more expensive due to inflation. But while drink prices may be going up, that doesn't necessarily mean that there's more drinks being served.”
Alternatively, more rural areas typically serve cheaper drinks - meaning that even though the revenues aren't quite as high as a bar in downtown Toronto, they could have a lot more foot traffic.
“Our program is rating on the actual number of drinks sold and then benchmarked with the revenues - that's a better tool to assess the risk and see how much alcohol exposure you actually have,” added Lopes.
SUM offers commercial general and host liquor liability protection for bars, restaurants, wineries and all venues that serve and sell alcohol to the public, covering on/off-premises liability, joint and several liability, forcible ejection and overservice of alcohol - offering liability coverage Canada wide, coast to coast.
And, as Lopes told IB that finding the right balance between affordability and adequate coverage is one of the industry’s biggest ongoing challenges.
“It’s a balancing act,” he said. “SUM’s program is two years old - since its inception, more markets have started to look at hospitality again. During COVID, there was virtually no one writing this save one or two carriers. Since then, we’ve seen more entrants in the space - people are starting to dip their foot in the pool again.”
As Lopes told IB, right now we’re in a soft market with more capacity and more markets looking at re-entertaining hospitality post-pandemic. However, two years passed during which businesses remained closed, restaurants and bars were shuttered up - meaning from a claims perspective it was a clean slate. And that makes for difficult pricing.
“You need to price adequately but with that pressure coming from a soft market cycle you also want to be competitive at the same time,” added Lopes. “You want to be as affordable as possible while also maintaining that underwriting discipline. And that’s the trickiest part.”
And while the hospitality has always been tough sector - not least thanks to the pandemic - Lopes believes he’s seeing it rebound comparatively quickly.
“More people are downtown, more people are eating out again,” he told IB. “Those industries have really bounced back. I don't know if they're being hit as hard with the economic pressures right now. Obviously, they still have supplies they need to buy and are feeling the inflationary increases in the tariffs - however, I don't think they're necessarily shutting down because of because of what's going on around them.”
That careful balance of maintaining competitive pricing without compromising underwriting integrity is central to SUM’s core USP. Lopes here credited the sector’s resilience and revival in urban areas as a sign that hospitality has found its footing again, even amid macroeconomic uncertainty.
But the next challenge, he warned, may come from within the industry itself. As more insurers re-enter hospitality, aggressive pricing could create the very instability that made coverage scarce during COVID.
“There's going to be an influx of new capacity and new markets wanting to write it,” Lopes said. “As we continue on with the soft market cycle, we’ll see pricing and rates coming down while really aggressive markets quote on some tougher hospitality business. We just need to be careful with undercutting rates and undercutting prices in that sector because, as experienced underwriter will tell you, it’s a very volatile class.
“You have to be disciplined, because when the claims do start rolling, there’s a spike in premium. And from there, the class gets hard again and it becomes unaffordable where restaurateurs are left with no options.”
For Lopes, he believes the biggest challenge for firms is that switch between soft and hard markets which drives volatility in pricing - which in turn frustrates the insureds.
“We just need to stay disciplined with pricing or it will just get hard again like it did during COVID and there won't be anyone there to save the day,” he said.
