Category Risk Management

Tourism risk management

19 May 2004 Angelo Coppola

Amidst reports of the South African economy shedding jobs, the tourism industry has been hailed as a beacon of job creation and economic growth since the advent of democracy ten years ago.

The industry has been remarkable in providing job creation, business opportunities, recognition and economic muscle to tour operators who were formerly disadvantaged, as well as training and mentoring nascent new entrants.

Many township operators have also been incorporated into the mainstream industry

Despite the decline of growth in the sector in 2003, purportedly due to rand strength, tourism in South Africa is still a promising industry, with much potential for employment and business opportunities.

According to Statistics SA, overseas arrivals have increased by 4% year-on-year, last year alone the tourism market in South Africa attracted 6.5 million foreign tourists.

The South African Tourism Business Council reported that the number of international tourist arrivals to South Africa increased by 80% since 1994; contrary to international arrivals statistics world-wide, which shows a decline by 1.2% in 2003, the largest drop in 55 years.

The prospect of even more tourists coming to this country is good news, not only for the industry, but the country at large, however it raises the spectre of operators running the risk of being sued for injuries, death, loss of property or other damages occurring while their customers are holidaying in South Africa.

Riette Fern, a director at Alexander Forbes Risk Services responsible for leisure and growth industries, cautions that the tourism business has a 'duty of care' towards their clients.

"Many operators, particularly the small-medium sized businesses in the tourism sector, are unaware of the responsibility and liability undertaken to tourists and passengers in their care and the potential ruinous consequences to their business and the country's tourist industry, in the event of legal action taken against them," says Fern.

She says if for instance an operator or hospitality venue outsources its transport service to a third party or an independent contractor it may be liable for accidents, injuries or death caused by the outsourced contractor.

For example, a hotel or bed and breakfast venue may be liable in the event that it organises airport transfers for a client with a taxi company whose vehicle blows a tire en route to the venue, particularly if this resulted from poor or a lack of maintenance.

"Ideally the players in the tourism industry need to ensure that they outsource the risks along with the service or activity," advises Fern.

"In addition, it is advisable for operators to ensure that they have a written and signed agreement in place with the service provider and that all the correct and necessary clauses and indemnities are included in the service provider agreement.

“The service provider should also be required in terms of the agreement to maintain adequate insurance."

Tourist operators also run the risk of being sued in the currency of the country where claimants originate," explains Fern.

"This can mean that companies being sued can be liable to pay large legal fees, in addition to the actual monetary claim, which is sometimes further escalated by foreign currency costs.

“Companies may be able to get away with paying out small-scale compensation under South African law, but foreign courts apply liability much more strictly and payouts are likely to be much larger.

“Furthermore if a company has any operations based in another country, even if it is just marketing its properties or services there, it risks being sued in those countries. Often that involves large claims that run into millions of dollars,” she warns.

Fern says a holistic risk management approach should be the first thing taken into account when the design and development of tourist leisure operations are undertaken and that insurance should be seen as a last resort or part and parcel of the risk management assessment to ensuring a secure and well-operated business in the sector.

"A risk management approach in an outsourced transport service, for example, would be to ensure that operators have advanced driving qualifications, public transport certificates and that the vehicles are roadworthy and suitable for their chosen activity.

“Managing risk can involve simple measures such as displaying disclaimers in the correct places and wording indemnities that should be signed by the passengers to prevent claims."

Often the client who has booked the tour or hotel transfer does not necessarily know that the service is not being provided by the tour operator, hotel or other direct service provider and if injury or damage results, their first reaction would be to demand compensation from the direct service provider rather than the independent third party service provider.

A risk management appraisal is imperative for a tourism operator as it can help prevent small potential problems from turning into disasters and could possibly even save their reputation and business. "What's good for tourism is ultimately good for the country," says Fern.

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