South Africa’s hotels and game farms vulnerable to the prolonged drought

The hospitality and leisure industry is deeply affected by the drought that continues to ravage large parts of the country. Leisure businesses should seriously consider taking additional steps to mitigate the risks posed by the drought, which can have a debilitating impact on the broader tourism sector.

Juan Coetzee, Managing Director of Hospitality & Leisure Underwriters, one of Santam’s specialist underwriting management agents, says the increase in food prices and the drop in visitor numbers are just some of the factors jeopardising margins when it comes to the costs of running game farms and other leisure resorts. The risks associated with the drought can potentially put a guesthouse or restaurant out of business, so insuring against these is a critical move for businesses to make.

According to Coetzee private game farms have been by far the hardest hit. “The higher costs of acquiring fodder for the private game farmers and the unfortunate necessity of culling of wildlife or allowing controlled hunting where water and food resources are not available is impacting the bottom line of many game farms. The urban areas have been less severely impacted but, in my view, the long term effect of the drought will most certainly be felt through increasing costs of procuring food and other hikes in operating cost.”

He added that drought-related claims were definitely on the rise. “Last year we received a claim from a game farmer in Mpumalanga where thirsty elephants looking for water managed to dig out the water pipes that supply water to the homestead on the farm, resulting in costly excavations and repairs. Luckily in this case the game farm owner was fully covered by one of our policies so the repair costs were paid in full.”

Coetzee points out that from a hotel and leisure perspective there is currently no specific policy to cover against drought directly, however, cover is available for specific risks that have become more prevalent due to the extreme drought conditions. Some examples of drought-related events include: business interruption, fire and severe weather effects such as lightning.

Specific cover available to the hotel and leisure sector includes the following:

Bush fire/loss of game extension:

This insures the policyholder against loss of revenue from guest bookings due to the fact that the bush around their encampment has been burnt and attracts no game and covers the actual loss of revenue from lost bookings as a result of the loss of game due to fire.

Spread of fire:

This extension provides cover for any negligence on the part of the policyholder for the spread of fire from their property to neighbouring properties and for any damages that may result from such a fire.

Loss of tourist attraction:

Where the attraction stated in the policy document is no longer accessible, impaired or damaged, the policyholder can make a claim for the loss of revenue due to the loss of bookings.

Coetzee says that it is a global phenomenon that temperatures are on the rise. “Water scarcity may well become a ‘norm’ in many parts of the world, including South Africa. Therefore, it is advisable that business owners operating in the tourism sector including hotels, restaurants, game farms and others who are at risk to the effects of prolonged drought, start to take active steps and insure their business enterprises accordingly. At the same time, the industry needs to play their part in conserving available water resources as the country battles through the prolonged period of drought.”

He suggests the following steps as a starting point to use water more wisely:

1. Maintaining existing plumbing
2. Install rain water collecting devices
3. Making use of “used” or grey water as much as possible
4. Installing alternative water collection mechanisms
5. Installing water saving taps and showerheads in bathrooms, toilets and kitchens
6. Installation of bore hole pumps