Emerging risks for hospitality industry

“Apart from the ‘traditional' types of risks, such as high energy costs, threats of power failures and the risk of non-delivery by outsourced partners – which all have a direct effect on customer service, food and beverage operations and safety – hotel owners and managers need to ensure that they are aware of any emerging or overlooked risks in the industry by continuously re-evaluating their risk management strategies,” he says.

Some of these include risks related to mixed-use construction, medical spas (spas within hotels that offer botox, laser resurfacing, etc.) and privacy/cyber risks dealing with credit card data and personal information housed on hotel keycards. Product liability risks stemming from the sales of branded products such as bedding and spa items, are also considered to be growing exposures.

“Top of mind”

“At the moment, the threat of pandemic to the hospitality industry is top of mind for most risk managers, even though experts are uncertain as to when or if a pandemic will actually occur,” says Scott. “However, if a pandemic does strike, it will likely impact this industry more than others, as this market relies on people travelling for business, pleasure, etc. The most important risk to business when it comes to pandemics lies in the lack of planning.”

Changes in the insurance market's perception of risk in recent years mean that, outside the life assurance and sickness markets, there is often very limited or no protection against many of the risks that come with a pandemic. Traditionally, cover for loss of business is related to a material or tangible event, such as fire. The illness or absence of staff usually falls outside the ambit of this type of insurance – which leaves business continuity management as the first and only line of defence.

According to Scott, while there are not many true risk transfer products available to address pandemic-type situations, there are alternative risk financing or mitigation solutions that can be used. “Examples of these solutions include accessing capital markets, using captive solutions and performing pandemic assessments, which involves an operations/risk transfer audit, impact quantification and mitigation strategy assessment.”

Additional concerns

Aside from pandemics, additional concerns for hospitality risk managers are property risks, reputation risk/brand management, terrorism and political risk.

“Reputation risk and brand management are particularly important to hotel management companies and remain the number one rated risk globally,” says Scott. “The reputation of an organisation is the selling point to guests. A large portion of the hospitality risk managers' duties contribute greatly to the reputation of the brand, such as handling guest claims, helping the hotel recover from catastrophic losses and managing employee injury illnesses.”

Evaluating the risks faced by the hospitality industry are particularly relevant as South Africa gears up with its preparations for the 2010 FIFA World Cup.

“Studying the risks and threats and coordinating the response has become an extension of sound corporate governance and duty of care, especially with an event as important as the 2010 World Cup,” says Scott.

Risk management and business continuity is a constant process that should match evolving business risk and threat conditions. It has to keep all key business operations working (albeit at other sites) whatever the threat, enabling all key business operations (and their supporting structures) to continue in a crisis situation.

“It is very clear that risk management should now extend well beyond traditional financial and insurable hazards to encompass a wide variety of strategic, operational, reputation, regulatory, and information risks,” concludes Scott.