The hospitality industry struggled in 2021 to make a comeback after the fallout from the COVID-19 pandemic. As 2022 and COVID's third year begin—heralded by another new variant, omicron—the testing will continue. Creativity, combined with a sharpened focus on risk management, will be key for navigating forward.
It’s not getting any easier. Finding qualified people is a struggle at all levels for hotels and restaurants. Tech investment can make up for some of the gap, but also heightens the risk of cyber exposure. Meanwhile, business travel is still flagging and indoor mask mandates in many regions can serve as a flash point.
The implications of it all aren’t lost on insurers. It’s increasingly common for underwriters to make on-site inspections of properties and check social media reviews for signs of potential risk. How restaurants are managing rising alcohol sales is also under scrutiny, as is the diligence of hotels in taking COVID safety measures.
As the new year unfolds, four key trends will influence hotel management as it works toward recovery:
1. To woo workers, pay, benefits and working conditions improve
It’s taken a long, hard look at their value propositions for companies to counter the worrisome fact: A third of former hospitality workers will not consider returning to the industry.
Restaurants have been especially hit hard, coming back with better pay, sign-on bonuses and better benefits, like limited healthcare and the commitment to cover college tuition. Hotels are following suit to some extent. But they’ve found other solutions, too, like cutting back on housekeeping. Technology also has helped, facilitating service with solutions like mobile apps and chatbots.
Protecting those employees who do return will continue to be a big priority, especially since COVID and its variants are still here, with the likelihood of more damage. Continued disruption is ahead, and one concern is workers’ compensation insurance. Many states are considering new presumption rules that would allow claims that assume an infectious disease was contracted at work. Improving working conditions will attract more workers as well as offset risks.
2. Technology’s role grows—along with the risks
Tech solutions continue to transform hospitality. Start with point of sales systems that add speed and efficiency to the sales process, inventory management and cash flow. During a time of curtailed face-to-face interactions, another benefit is the proliferation of apps that, for example, can facilitate driver training and pre-trip car inspections for restaurant deliveries.
But the downside risks will continue to grow in 2022. Hardly a day passes without a new report of cyber breaches among hotels that are more vulnerable than ever to ransomware, malware, phishing and other crimes. Attempted online fraud affecting hospitality continues to escalate, up 155.9 percent just through the second quarter of 2021.
Cyber attacks are not going to slow in 2022. Organizations need to understand their exposures and put safeguards in place, from firewalls to employee training on avoiding breaches. They also should talk to their broker to ensure they have adequate cyber insurance coverage. Jumps in claims, especially for ransomware, have tightened capacity and are likely to push rates up 20 percent or more.
3. Waiting out the dearth of business travelers
It will take a resumption of business travel to return hospitality to full health. That’s a slow-moving process, one that’s testing the hospitality industry’s resiliency.
Business travel, of course, keeps hotels healthy. Lack thereof as the pandemic drags on is holding back the rebound. Hotel revenue in 2021 from business travel is predicted to dive $59 billion from the halcyon days of 2019 and it doesn’t look to change measurably in 2022.
It’s taking ingenuity to wait things out because the large business meetings and conventions that drive much of business travel are only resuming slowly. One pivot is to make the host hotel a “hub” from which events and local travel extend. Smaller groups use small meeting rooms for networking and presentations, enjoying the keynoter via video. Planners insist on in-person site visits as the virtual mode wears thin. Combining the “business with leisure” play is another winner, like “come early, stay late” offers that encourage longer hotel stays.
Over the summer, such strategies boosted the nightly revenue per available room to meet or exceed prepandemic levels in 70 markets. While the industry has entered recovery mode, RevPAR still remains at 60 percent of 2019 levels on a year-to-year basis. The question is staying power for 2022—and beyond.
4. Be ready for disruptions from climate-change weather events
Weather-related catastrophes are wreaking havoc on every industry. Expect more of the same and be ready for the costs. Property-casualty rates are rising by as much as 20 percent.
Extreme weather disrupts every facet of the hospitality business, raising costs, interrupting operations and reducing leisure and travel. Heat and drought add to wildfire risks and three of the top five years for burned acreage have occurred since 2015. Add in earthquakes, hurricanes, tornados, floods and hail and the pressures become all-too real.
Not surprisingly, weather-driving claims in the U.S. have been higher than expected. One way to manage risk in the resulting hard market will be to focus on water mitigation and minimizing interior damages. But hospitality businesses that leverage catastrophe modeling to identify weather-related catastrophes will be better prepared and have a compelling management case for underwriters.
Kimberly Gore is the national practice leader of Hub International’s hospitality specialty practice. Zach Kuperman is a SVP and the national restaurant practice leader for Hub International.