There is always room for change
Tourism is one of the key drivers of the South African economy, contributing to approximately 7% of the country’s Gross Domestic Product (GDP). Employment opportunities in the sector continue to rise as tourism volumes increase mostly thanks to the relaxation of visa regulations for minors and the competitiveness of the Rand.
Consequently the total room revenue in South Africa is expected to grow by 8% annually. These developments will certainly have a significant impact on risk exposures and key trends within the hospitality industry.
While more tourists and more income per bed night equals more revenue, what it also means is that accommodation providers may not be adequately covered as revenue sums insured may be inadequate. What also comes with more guests passing through an establishment is the increased possibility of a liability claim, especially if employees have their hands full.
International exposure
Add to this the fact that international guests reside in countries with stronger currencies, further compounding possible financial repercussions. For example, if a guest from France is injured and cannot work for a few months, their claim for medical expenses and loss of income could be significantly higher when converted to Rand than that of a South African guest.
To exacerbate the situation, a French court could also potentially make punitive type awards for pain and suffering, which can become a very costly legal process. Insurers and intermediaries will, therefore, need to work closely with clients to ensure that cover is sufficient.
Up in the air
The rise of informal accommodation providers through Airbnb and Couchsurfing has made travel more affordable, also giving the industry a tremendous boost. Unfortunately these establishments are not as well regulated, increasing the likelihood of uninsured exposure. This presents an opportunity for insurance service providers to offer guidance around risks, as well as compliance.
As much as financial losses can have a severe impact, so too can reputational damage. The prevalence of social media has given the consumer a much louder voice on platforms, reaching millions. Unsatisfied or litigious consumers will not hesitate to complain about poor service and criticise brands online. It is essential to consider crisis or incident management strategies as well as containment cover that will help limit the impact on brand perception value.
Bottoms up
Recent proposals regarding the National Liquor Amendment Bill could have far-reaching consequences for the hospitality industry as civil liability may be conferred on service providers that produce or sell alcohol. Not only will stringent control measures be necessary but the insurance sector will need to carefully consider and respond to the product changes required to ensure the industry is appropriately covered.
Weathering the storm
Extreme weather conditions are also a key challenge; the prolonged drought is impacting every aspect of the country’s socio-economic development. The hospitality industry, in particular, is an intensive water user and any restrictions – either partial or for a fixed period of time – impacts the convenience of guests. Smaller establishments especially may not have alternate water sources such as tanks or boreholes, hence the need to purchase water – adding to operating costs. The bigger concern is low water pressure or no access to water as it could severely compromise guest safety and lead to the establishment suffering serious damage in the event of a fire.
Areas such as bushveld lodges, where a fire response service is not easily available, are at even greater risk. From an insurance perspective, not having the right fire suppression and management controls in place, could affect pricing and even the availability of insurance.
Ultimately, South Africa’s tourism industry is susceptible to much volatility – both locally and globally – however, the right risk mitigation measures are vital in keeping the industry resilient and poised for healthy growth.
