Tourism businesses require more than just a normal business pack, as they face challenging market conditions and specialised risks.
The tourism industry is under stress. The high Australian dollar and reduced consumer spending have created a tough operating environment for our local tourism and leisure industries.
Fewer overseas visitors are arriving in Australia and more Australians are holidaying overseas, taking advantage of the favourable exchange rates. For example, in the seven months to July this year, overseas departures rose more than 10% compared to the same period the previous year, but arrivals were up only 0.4% over the same period, according to the Australian Bureau of Statistics.
A spate of natural disasters such as floods and storms haven’t helped, says Mal Barnes, who underwrites insurance for the tourism sector at AIB Pty Ltd.
In Queensland particularly, many areas that are usually frequented by tourists, such as Mission Beach in Cairns, aren’t experiencing the same demand they once enjoyed.
Departures rose more than 10% compared to the same period the previous year.
In difficult economic times there’s always the danger that a business will lower its level of insurance cover or do away with certain types of cover altogether. It’s only when there’s a major downturn or disaster that we find businesses are underinsured or in some cases not insured at all, Mal Barnes says. A common reaction of businesses under pressure is to keep their insurance but fail to raise the sums insured, he says.
The tourism industry differs from other businesses in terms of insurance in that they require a greater range of types of insurance.
Most underwriters will issue a business package that usually covers for property damage, business interruption, theft, tax audit cover, fidelity guarantee, employment practices liability and professional indemnity.
These tend to be aimed at a business operating out of a premises but a tourism operator may operate in the field or out in the open as well as from a fixed location, and so have additional liability risks.
“The liability section of that business package policy is not necessarily good enough for them,” says Barnes. Quite often they’ll need additional liability insurance, since they are taking people into high-risk situations.
Indeed, they may need this additional cover simply to carry out their businesses, says Steve Gilbert, Managing Director of Sports Underwriting Australia.
“It’s quite common for operators to require proof of their liability insurance covers before they can operate in certain areas such as state parks, council controlled areas and similar areas,” he says.
Where a business offers professional advice or services as part of its operations (such as a ski-hire operator offering learn-to-ski lessons or a sail boathire operator offering sailing lessons), it should also consider taking out professional indemnity coverage, which indemnifies the operator against errors andomissions arising from this advice, Gilbert advises.
He also recommends Management Liability cover. This covers directors and officers liability, employment practices liability, plus other risks specific to the leisure industry, such as investigation costs, enquiry costs, fines and penalties and pollution defence costs.
To fully cover a tourism operator’s needs, a broker may need to go to several underwriters that specialise in different insurance areas, says Gilbert.
For an underwriter, writing the appropriate cover and setting the right premium involves making an accurate estimate of the operator’s risk – which isn’t always easy.“It’s sometimes difficult to discover what a tourism operator actually does,” says Barnes. He says one of his recent clients explained that his business involved him personally conducting walking tours in Italy. “This turned out to include trekking in the Himalayas, which he in any case contracted out to local guides over whom he had no control,” says Barnes.
In general, the higher the risk, the greater the premium (white-water rafting and bungy jumping top the list of risky activities) but this just one of a number offactors determining the premium.
White-water rafting and bungy jumping top the list of risky activities when determining the premium.
Others include the turnover the business is doing in that activity, the level of indemnity required by the insured, the number of clients/customers the operatorhas annually, what risk management practices the client has in place, and the client’s operating history.
Premiums for some types of insurance are increasing. The recent spate of natural disasters have caused reinsurers to increase their premiums for property-relatedinsurance, Barnes believes.
On the other hand, premiums for liability insurance, which isn’t affected by disasters, have risen less steeply – though they have nevertheless risen as reinsurers claw back losses from their property-related claims, he says.
Nevertheless, the market has become more competitive over the last decade.
“It was a fairly tight shop for a few years after that there were not many underwriters involved in the tourism industry,” says Mal Barnes.
Since then, more underwriters have entered the tourism and leisure market, and today insurance cover for tourism operators has never been easier to get, says Gilbert, especially for those operators who operate a professional and reputable tourism business and have risk management practices in place.
“Underwriters are keen to get them on their books,” says Gilbert.
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