Taking the Risk Out of Risk Management

April 21, 2009 Taking the Risk Out of Risk Management Janice L. Schnabel Global Hospitality & Gaming Practice Leader Portland, Oregon

State of the Hospitality Insurance Market

Rates – Year End 2008

Insurance Marketplace Drivers • Increased Competition • Increased demand for complete and detailed specifications prior to releasing quotations. • Need to Maintain Premium Volumes • More aggressive on pricing • Increased Appetite for Risk • In some cases…business they have no experience in writing. • Change in Behavior in Admitted Insurance Markets • Writing coverages that were previously only written by surplus lines companies.

Emerging Trends & Developments • Increase in the Creation of New Coverage Options • Example: New endorsement for extra expense from communicable disease. • Attempts to Differentiate Themselves on Service Rather than Price and Product • Acquisition Activity Among Insurers has Increased • Standard insurance markets are making money and want to add diversification to their portfolios. • Making it difficult for MGA’s to meet growth objectives. • Change in Behavior in Admitted Insurance Markets • Writing coverages that were previously only written by surplus lines companies.

Emerging Trends by Line of Coverage • The property insurance market were extremely competitive in 2008 • Catastrophe limits have increased and capacity is plentiful • Rate reductions will not continue in 2009 as they did in 2008 • TRIA renewal lifted terrorism market uncertainty—rates decline in 2008 • Approx. 67% of Marsh Hospitality clients purchase terrorism coverage • Pricing and limit restrictions still driven largely by geography • Standalone coverage still the only option for international locations • Significant rate reductions in 2008 in primary and excess casualty lines • Liquor and auto remain generally flat with decreases for clients who are proactively managing these risks • WC rates are still under pressure from ongoing medical pricing increases • Crime rates are expected to remain flat but may experience some negative impact from a higher frequency of theft during these difficult economic times

Looking Ahead…2009 and Beyond • Softening of the hospitality insurance market is beginning to slow • Greater scrutiny will be placed on financial risk. • Rating plans that may require collateral such as letters of credit • Underwriters will increase their focus on an insured’s financial condition—already seeing foreclosures and distressed properties. • Risk Appetite • Throughout 2008, there were more insurers pursuing hospitality business than is normally the case, forcing an increase in capacity • Financial Ratings • Seek insurers that have longstanding and financially strong history of writing hospitality business. • Insurers that lack industry expertise and commitment tend to stop writing this business once the market hardens and they realize their underwriting results.

What Can You Do To Improve Your Position in the Insurance Marketplace? • Submit Renewal Information As Early As Possible • 90 – 120 days is not unusual…it is advisable. • The Impact of a Favorable Loss History is Priceless • Companies with a commitment to loss-control efforts will be in the best position to benefit from falling rates. • “Safety” Hiring • Training • Across all lines of insurance • Preventive Maintenance and Inspection Programs • Vendor and Sales Contract Review • Certificates of Insurance Program Management • Pre- and Post-Claim Management

Options for Handling Risk

The Four Options for Handling Risk • Terminate/Avoid • Treating/Training • Tolerate • Transfer

Terminate/Avoid • Reactive: • The most effective way of handling an identified risk is to terminate or eliminate it from the program, building or process. • Example: Rid the property of a hazardous chemical. • Proactive: • Avoid the risk altogether. • Example: Procure a copy of the MSDS prior to bringing the chemical on property.

Treating/Training • One of the most effective and important ways in which to treat a risk is through training. • Consistency in following safe work practices minimize the likelihood of injury. • Use of Personal Protective Equipment (PPE) • Machine Guarding • Chemical Testing • Note: An overall Risk Management Program targets much of its attention on the treatment of risk.

Tolerate • Active Tolerance: • You have done everything you can do to reduce the exposure but a significant risk remains. • Example: Using a hazardous chemical for which there is no safer substitute, that is necessary to accomplish the cleaning or treatment task at hand. • Passive Tolerance: • Passively tolerating risk suggests that you don’t even know the risk exists. • This option is totally unacceptable and can be construed as negligence in certain situations.

Transfer Two Options for Risk Transfer: • Through Insurance • The most common way of transferring risk and one that we will always need to use to some extent. • The more effective your risk management efforts, the less you will need to depend on insurance. • Through Contract • Sales • Vendors • Valet Parking

Handling Guest Incidents

Key Terms • Who are “Guests”? • Complaint v. Incident v. Claim • Bodily Injury • Property Damage or Loss • Reasonable Care (Foreseeability) • Liability Issues • Who is at fault and who decides? • The Claim Process • Responding & Reporting • Investigation Techniques • Settlement & Trial Process

Guest Incident Training and Tracking • Train Employees (MOD’s) in “Handling Guest Incidents” • Track Number/Cost of Guest Incidents by Type in Order to Develop Programs to Minimize or Eliminate Them • Slips & Falls • Inside and Outside • Trips & Falls • Cuts & Scrapes • Auto Accidents • Missing Property • Auto Incidents/Accidents • Food Related Incidents • Food Injury and Food Illness

Who Responds/Handles? • First Employee on Scene • What do they say? • What do they do? • Employee in Charge of Handling Incident • Security • MOD • General Manager • Risk Manager • Claims Adjuster • Defense Attorney

Tips: Responding, Investigating and Reporting • First and Foremost: Take Care of the Guest! • Secure Names of Witnesses • Inspect the Accident Scene • Complete the Initial Report • Do Not Document Opinion • Follow Procedures for Reporting the Incident • Your Company • Insurance Broker • Insurance Carrier

Who Pays? • Insurance Carrier • The Hotel’s Insurance Company • Direct Property Costs • Hidden Costs

“Comping” the Room • “Comped” Rooms Are Not Considered Payments, Settlements or Admissions of Guilt • Considered the act of a good host • Decisions should only be made by the GM • Do Not Make Payments Directly to the Guest • Do Not Settle Claims with the Guest

Would You Pay? • A restaurant server spills salsa on the guest’s suit jacket… • The guest tells you that he strained his arm trying to open his patio door. He wants to see a doctor right now… • The guest reports that her purse is missing. She had left it with the Front Desk clerk an hour ago… • Three guests report to you that they were sick all night after eating in the hotel dining room… • A VIP guest’s camera is missing from the banquet room where he had briefly left it during a meeting set up… • You observe a guest services attendant run over a guest’s foot with a bell cart. The guest suffers a minor cut on his toe, and wants treatment to avoid infection…

Points to Remember • DON’T • Offer to Pay Medical Expenses • Transport Injured Guests • Admit Responsibility • Say the Insurance Company Will Pay • Argue or Debate the Cause of the Incident • Reprimand Employees at the Scene • Make References to Prior Similar Incidents • Discuss with Strangers, EVER

Summary • React A.S.A.P. • Assess the Situation • Use Common Sense • Don’t Go Out on a Limb Alone • Take Someone With You • M.O.D. - Your Insurance Broker/Adjuster • Get the Facts • Identify Witnesses • Report Everything Immediately

Taking the Risk Out of Risk Management