Industry Views

Hospitality, Travel and Leisure

Key Issues for the Industry Currently Reflected in the Risk Selection

The hospitality, travel and leisure industry was hit especially hard by the COVID-19 pandemic, as evidenced by this year’s top-ranked risks, many of which are interconnected: business interruption, economic slowdown and slow recovery, cash flow or liquidity risk, failure to innovate, and failure to attract and retain talent. Due in part to the impact of COVID-19 variants and slow and uneven vaccination rates, we see an uneven recovery around the globe and a slow resumption of leisure travel and entertainment. Building organizational resilience to absorb further uncertainty and external shocks as the pandemic wanes will be a key concern for the industry going forward.

Gaining better customer insights and providing personalized services are now recognized by many of the players in the industry as core business goals. Companies leverage personal data for this, with the result that data privacy (including General Data Protection Regulation [GDPR]) requirements and non-compliance risk continues to challenge the industry.

The industry is highly vulnerable to climate change, which was ranked at number 12, and at the same time contributes to the emission of greenhouse gases, one of the causes of global warming. Accelerating climate action, therefore, is of utmost importance for the resilience of the industry.

Surprises in the Top 10 Risks Selected

Cyber risk ranks at number four by respondents in the hospitality, travel and leisure industry, compared with its first-place ranking in the overall survey. While the impact of the COVID-19 pandemic has been devastating, the threat of cyber attacks and data breaches is ever-present and increasing in frequency, sophistication and severity. While legislation around the globe continues to address public concerns related to data privacy, ransomware attacks are becoming larger and more frequent; this exposure will only increase. We have seen a number of high-profile loss events in the industry, so addressing cyber risk should be a top priority in creating organizational resilience.

In due time, pandemic concerns will fade, whereas the threat and impact of cyber attacks and data breaches will only intensify, threatening the ability of hospitality, travel and leisure companies to transfer risk via insurance.

Most Underrated Risks

The COVID-19 pandemic has highlighted the potential for non-damage business interruption (NDBI) events to have a devastating impact on the industry. Risk professionals should take other potential NDBI events into account, such as terrorism attacks and natural catastrophes, which have the potential to cause significant financial impact without physical damage to first-party assets.

Accelerated rates of change in market factors dropped out of the top 10 this year, down to rank 14 from rank five in 2019. Recent events such as escalating global trade tensions and uncertainty surrounding Brexit, among others, can cause market conditions to change quickly and in ways businesses might not anticipate. Meanwhile, the emergence of disruptive technologies can suddenly threaten existing business models.

Regulatory or legislative risk, ranked 24, is not among the top 10 risks identified by industry respondents in 2021, dropping from number eight in 2019. This is surprising considering changing regulatory landscapes around the world and the growing complexity of geopolitical events.

Challenges the Industry Will Face in the Next 3 Years and What Organizations Can Do to Address Them

Hospitality, travel and leisure companies are under significant financial strain and are dealing with concerns about cash flow, liquidity, economic recovery and resumption of leisure activities, including travel. This financial pressure could lead to stringent cost-control measures that compromise risk management. Companies should resist the temptation to cut expenses to the bare minimum and focus instead on total cost of insurable risk and on maintaining adequate risk management and risk transfer programs.

The industry’s inability to offer remote work options for many essential job functions is also a concern because it could make it more difficult for companies to attract and retain talent.

The hospitality, travel and leisure sector lags other industries with respect to its use of captive or protected cell captive insurers, although survey results indicate an intent to increase use of these vehicles in the next three years. As the industry risk landscape changes and companies develop a greater appreciation of emerging risks, some of which may be considered uninsurable or partially insurable, risk financing strategies, including the use of strategic retention vehicles, will likely accelerate.

How New Challenges Will Require Companies to Change Their Approaches to Risk Management and Mitigation

Two looming risks that could significantly impact the hospitality, travel and leisure industry are rising inflation and a new period of global unrest. Rising inflation could lead to higher fuel prices, which could curtail road travel and increase the price of air travel. It could also increase prices for wages for workers and for building materials used to renovate properties. Growing global unrest could lead to increased terror threats, which may reduce travel demand, especially in the most affected geographic locations.

Given the financial pressure they currently face, companies may be tempted to cut expenses as much as possible, but a focus on the total cost of insurable risk and maintaining adequate risk management and risk transfer programs is essential. Organizations should focus on understanding their risk tolerance levels now and in the coming years as the industry recovers and ensure that, within tolerance levels, those risks are adequately addressed. Risks that rise above those tolerance levels should be transferred to the insurance market.

Current Top 10 Risks

Predicted Future Risks

By 2024

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