The Australian tourism industry is again reeling from a series of massive natural disasters.
It seems as though many in the industry do not learn from history or are content to believe that “lightning never strikes in the same place twice”.
The fatal 2011 Queensland floods (estimated to lead to around $2 billion in insurance claims), Cyclone Yasi’s devastation in four states, further flood events in South Australia, Victoria, NSW and northern Western Australia, an inland tsunami in Queensland and the many bush fires have crippled much of the tourist infrastructure in these areas.
Just two years ago the destruction left behind by Cyclone Charlotte, Cyclone Ellie and the monsoonal storms that hit Queensland and Northern NSW, the Pacific Adventurer oil spill and the bushfires that devastated Victoria where 173 people lost their lives and directly impacted 51 townships, destroying over 2000 homes, along with many businesses, dramatically emphasised that most people did not have adequate cover.
It was no different this time.
Compounding the nightmare was the insurance companies’ curious definition of what is a flood. There was a massive outcry after the 2009 disasters that there should be a standard, comprehendible, single definition of flood – it never happened.
Naturally the insurance companies want to limit their risk and will continue to word their policies to give them the best possible opportunity to opt out of settling a claim and nowhere is this better demonstrated than with flood cover.
This leaves it up to the policy holder to ensure they are actually (and adequately) covered for whatever risk they are insuring against. That may be more difficult than you think. Policies written in “plain English” are created by very skilled word smiths that are working for the insurance company not the policy holder. As we can see from the spate of legal disputes arising from the 2011 disasters, the “small print” is not easy to understand even by legal experts or courts of law!
Even insurance companies themselves have had to call in experts to decipher whether they are liable under their own policies!
Flooding in Australia is the most expensive form of disaster and insurers see these extreme weather events as no longer the exception but the norm and risk is being priced accordingly or not being covered at all. Following the 2011 crises, many insurance companies are refusing to cover for flood in areas that have proven to be prone to inundation or severe storms.
This includes tidal surge, not a new phenomenon but one that is increasingly affecting tourist operators as many, logically, are right on seafront areas.
These factors are going to worsen whether you are an advocate or sceptic of global warming. The reality is extreme weather patterns are becoming the norm and will continue to occur more frequently and with greater intensity.
Where does that leave the tourist operator in a high risk zone?
Primarily it lies with the tourist operator themselves. Every business must do regular risk evaluation, mitigation and put safety procedures in place before the risk eventuates. Insurance that covers the main risks then needs to be selected. It is not a case of “one policy covers all” and the “cheaper the better”. The cover needs to encompass the risk in total.
Getting a policy to do that will not be easy. Insurance companies will be wary of businesses wanting cover against a risk in an area where the likelihood of that risk occurring is very high but, at the same time, those same insurers are making around $37 billion a year from premiums so it is in their own interest to negotiate.
The cost of premiums will go up to cover the outlay on claims from the 2011 disasters so businesses need to realise that they will be paying more for insurance. So here it is vital that insurance seekers select cover for the main risks their businesses are facing. General cover everything policies are of little use. Policies now need to be risk specific.
Even those businesses that were fully covered under their policies found that the amount they could claim was woefully inadequate to compensate for their losses. The repair and replacement of infrastructure caused by a natural disaster is merely part of the cost. Many found that the sum insured was based on normal market rates at the time the policy was instigated (possibly years prior to the event) and were well below today’s rates especially when demand reaches critical levels following a disaster. Many don’t cover for demolition, site clearance, permits, government taxes, architect, engineering and other associated costs.
A business faces loss of income, staff costs, data loss and possible liability litigation as well.
Accommodation providers find themselves in a high risk business when one realises that when they are looking for insurance it is not just to cover natural disasters but multitude of other possible eventualities that could affect their guests, staff and business. Risks like:
Health risks (diseases, guest/staff emergencies/accidents, vermin/insects)
Crime (assault, theft, room invasion)
Civil unrest, terrorism
Equipment malfunction, failure
Management/staff (fraud, harassment, bullying)
Utilities failure (energy, sewerage, water)
Data/records loss, tampering
It is no use for an accommodation provider to rely on a general third-party type cover when the small print could well exclude one of the most logical risks that they should insure against.
There are insurance brokers that specialise in insurance particular to the needs of the hospitality industry and these can save an enormous amount of time (not to mention heartache) to secure appropriate risk cover and their services are generally paid for by the insurance companies.