Orientation to Risk Management

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					Risk Management & Insurance
  In the Hospitality Industry
                  Presented to

   Hospitality Newfoundland & Labrador

                February 6, 2004

          By Craig A. Rowe, FCIP, CRM
   The current insurance market is the worst
    –   9/11 & Other Terrorism
    –   Stock Market
    –   Catastrophic Losses
    –   Insurer Insolvencies
    –   Claims Trends
    –   Corporate & Accounting Scandals
   The Results of this Insurance Market
    –   Higher Reinsurance Costs
    –   Higher Premiums
    –   Reduced Capacity
    –   Reduced Limits
    –   Stricter Underwriting Practices
    –   No More PML Underwriting
    –   Exclusions
         » Terrorism
         » Mold
    – Higher Deductibles
   Results of Market on Business
    – Some businesses cannot get insurance and have
      to shut down.
    – High premiums are cutting into profits,
      resulting in layoffs and other cut backs.
    – Companies are having to change their activities.
    – High risk activities being sub-contracted out.
    – Limited coverages and higher deductibles are
      leaving businesses paying their own losses.

  There are things you can do to
    minimize the impact of the
insurance market on your business!

You can pay much less in the long
 run by doing what the experts do!
       Presentation Overview
 Understanding Insurance
 Assessing the Risks of Your Business
 The Risk Management Process
 Risk Management Tools
 Risk Management Tips
 Loss Control
 Hospitality Industry Risks
        Understanding Insurance
   The Need for Insurance
    – An insurance company pools the money of a large
      group and promises that if one of the group suffers a
      predefined loss, then the pool will pay for the loss.
    – Business owners and individuals trade off the
      affordable cost of insurance for the peace of mind that a
      large loss won’t mean financial ruin.
    – Insurance is also required to obtain bank loans, and
      proof of insurance is required in many business
    – The value of insurance is underestimated.
    – For risk managers, insurance is often the last defense.
                       Insurance and Related Costs


              1   2     3      4      5          6   7   8     9   10

                      Actual Cost                Target Cost
       Understanding Insurance
   Underwriting
    – Underwriting is the process of deciding what to
      insure, at what terms, and for how much.
    – Underwriters are the people who perform this
    – Because an insurer can only insure a finite
      amount of risk, they will pick what they feel to
      be the most profitable risks to insure.
    – You are competing for insurer capacity.
    – It is important to note that insurers don’t have
      to insure your business.
Factors Affecting Insurance Premiums
   External Factors
    –   Reinsurance Rates
    –   Stock Markets
    –   Interest Rates
    –   Industry Losses
    –   Type of Industry
    –   Culture (Litigiousness)
    –   Legal Environment
    –   Catastrophes
    –   Insurance Market
Factors Affecting Insurance Premiums
   Internal Factors
    –   Risk Management
    –   Industry
    –   Policy Limits
    –   Coverages
    –   Values Insured
    –   Operations and Processes
    –   Loss Control
    –   Claims
    –   Deductibles
     Assessing the Risks of Your
   What is Risk
    – A risk exists where there is an opportunity for a
      profit or a loss.

    Risk = Probability x Severity

    Probability:    likelihood of an event occurring
    Severity:       the extent and cost of the
                    resulting loss
      Assessing the Risks of Your
   Risk Identification
    – Chart your risks in a way that allows you to identify the
      more common and serious risks.
    – Consult your insurance broker.
    – Examine past losses.
    – Industry associations are an excellent source of
    – Employee feedback.
    – Customer complaints and suggestions.
    – Industry’s trade press.
    – Hire a consultant.
    The Risk Management Process
   Why Manage Risks?
    – Saves Resources: People, Income, Property,
      Assets, Time
    – Protects Public Image
    – Protects People from Harm
    – Prevents/Reduces Legal Liability
    – Protects the Environment
Risk Management: A Definition
   Risk management is the process of making
    and carrying out decisions that will
    minimize the adverse effects of risk on an
    The Risk Management Process
   The Bigger the Business, the Bigger the
    – Businesses and Organizations are perceived as
      having a lot of assets.
    – Businesses and Organizations are perceived as
      having large insurance policy limits.
    – People are becoming more and more willing to
    – Courts are often sympathetic to injured people.
    – Deep pockets pay. Joint and several liability.
    The Risk Management Process

   Identify Potential Exposures To Loss
    – what can possibly go wrong
   Measure Frequency And Severity
    – likely number and size of claims
   Examine Alternatives
    – what are the options: prevent, mitigate, retain,
      transfer, accept the risk, etc
    The Risk Management Process
   Decide Which Alternatives To Use
    – of the possible risk management techniques,
      which strikes the best balance between
      effectiveness and affordability
   Implement The Chosen Techniques
    – utilize necessary resources to develop the plan
   Monitor Results
    – is your plan working, are changes or updates
     Risk Management Tools
 Insurance Certificates
 Policies and Procedures
 Signs
 Hold Harmless and Indemnifying
 Waivers
 Accident Reporting Forms
         Risk Management Tips
   Keep Old Policies and Certificates
   Insure to Value
   Invest in Loss Control
   Protect Your Image
   Sell Your Business to Your Insurer
   Cooperation with Insurers/Brokers/Adjusters
   Loyalty vs. Shopping Around
   Insurance Renewals
   Claim Records
   Choosing Deductibles
                  5 Year Claims Analysis
   Year           # of         Total Cost    Your cost   Your cost   Your cost   Your cost
                 Claims        of Claims     at $1000    at $5000       at          at
                                                                     $10,000     $25,000

        1          15              125,000        9000      37,000      81,000     125,000

        2          12              120,000        8000      35,000      75,000     110,000

        3          18              150,000      12,000      48,000      90,000     135,000

        4          16              170,000      11,000      52,000      93,000     140,000

        5          19              210,000      15,000      63,000     106,000     185,000

Total              80              775,000      55,000     235,000     445,000     695,000

Average            16              155,000      11,000      47,000      89,000     139,000

Premium at Different Deductibles               300,000     175,000     100,000      45,000

Cost of Risk at Different Deductibles         311,000     222,000     189,000     184,000
             Loss Control
 Physical  Protection
 Liability Loss Prevention
 Insurance Inspections
 Fleet Loss Control
Hospitality Industry Liability Risks
   Occupiers Liability
    – Slip/Trip and Falls
    – Bed Bugs, Body Fluids, Needles, theft from/damage to
      vehicles in parking lot.
   Liquor Liability
   Products Liability
    – Food, Souvenirs
   Wrongful Detention/Imprisonment
    – Shoplifters
   Use of Force
    – Bouncers in Bars/Restaurants
Hospitality Industry Liability Risks
   Occupiers Liability
    – Newfoundland has abolished the old laws of
      occupiers liability.
    – Old law: duty of care depended on type visitor:
      Invitee, Licensee, Trespasser.
    – Now: ordinary negligence principles govern the
      duty owed.
    – Stacey v. Anglican Churches of Canada (1999).
Hospitality Industry Liability Risks
   Occupiers Liability Loss Prevention
    – Inspection and Maintenance Policy
       » Written Policies & Procedures
       » Regular checks using checklist
       » Inspection/Maintenance logs kept
       » Prompt reaction to problems
       » Staff training
    – Construction Methods
    – Signage
Hospitality Industry Liability Risks
   Liquor Liability
    – Duty Imposed at Common Law:
       » Stewart v. Pettie (1995), Supreme Court of Canada
             Landmark case in Canada for Commercial Host Liquor
    – Statutory Duty:
       » Newfoundland Liquor Control Act
             Can’t serve alcohol to people under 19
             A person can’t be intoxicated in a public place
             A person can’t give or sell alcohol to a person under the
              influence of liquor
 Liquor Liability Prevention
1. Implement a written Policy adopted by
   the board & senior management that
   includes the information contained
2. Strict enforcement of policies and
   procedures with meaningful
3. Strict Regulations for alcohol use on
   your property.
   Liquor Liability Example
4. Some possible controls and deterrents are
– Limit alcohol consumption
– Bartenders should be experienced and not serve
  obviously intoxicated persons
– Offer food service
– Encourage taxi use and possibly provide vouchers
– Provide reduced/subsidized taxi and hotel rates
– Encourage car pools and designated driver programs
– Guests reminded before and during event not to drink
  and drive and other options available
– Have trained doormen/bouncers/spotters who
  encourage/insist on taxi use
– Inform guests that intoxicated persons will be put into
  Liquor Liability Example
5. All staff that serve alcohol should attend a safe
   server/server intervention program.
6. Have groups/individuals that rent the facilities
   sign a rental agreement that includes a hold
   harmless and indemnifying clause.
7. Provide groups/individuals that use or rent
   your space with your alcohol service policy
   and encourage them to follow the procedures.
   Also encourage regular renters to have their
   servers attend the training mentioned above.
  Liquor Liability Example
8. Check with your broker to make sure you are
9. If you don’t normally serve alcohol as part of
   your business, have functions off site at a
   licensed establishment.
Hospitality Industry Liability Risks
   Products Liability
    – Donahue v. Stevenson: Landmark Case
       » Liability for defective products rests with the
    – Food Service
    – Manufacturing
    – Souvenirs
Hospitality Industry Liability Risks
   Products Liability Loss Prevention
    –   Quality Control is Key!
    –   Written Policies and Procedures
    –   Know Your Suppliers
    –   Protect Yourself Contractually
    –   Prompt/Effective Claims Handling
Hospitality Industry Liability Risks
   Wrongful Detention/Imprisonment
    – Shoplifters

   Use of Force
    – Bouncers in Bars/Restaurants
 We can’t teach you how to handle every
 Use your best judgment!
 If in doubt, ask someone!
 Document!

  Thank You!
  Craig Rowe
           Case Study 1
 A boy climbs a tree in a Municipal park,
  landing on the rocks below and is fatally
 The tree is outside the play area of the park.
 The Municipality had no idea kids were
  climbing trees in this area.

   Is the Municipality liable? Why/Why not?
         Case Study 1
 Ricard v. Trenton
 Municipality not liable.
 Municipality has no duty to protect from
  falls from trees where no climbing is known
  or reasonably anticipated.
 If the tree was in the play area, or if the
  Municipality had knowledge of kids
  climbing the trees they would likely be
          Case Study 2
 A woman attends a company Christmas
  social where she consumes alcohol
 Before leaving, boss and fellow employees
  offer a ride, or call husband
 Goes to a bar, consumes more alcohol
 Drives 40 kilometers in a snowstorm
 Goes across road, hits truck head-on
 She is seriously injured, no one else hurt
 Who’s liable?
             Case Study 2
 Hunt v. Sutton Group Realty
 Employer and Bar “Joint and Severally
  Liable” for 25%, Hunt 75% Liable
 Total injury amount $1.3 million
 Bar not insured, goes bankrupt, Employer
  has to pay almost $300,000
 Appeal court ordered new trial
               Case Study 3
 A woman slipped on the deck at a
  swimming pool, and alleged that there was
  a soapy substance and/or pools of water.
 The pool deck was washed that morning
  and had adequate drainage.

   Is the pool owner liable? Why/Why not?
             Case Study 3
 Lafontaine v. Women’s Christian
  Temperance Union
 Pool owner not liable.
 All reasonable steps were taken and water
  on a pool deck is not an unusual hazard.
           Case Study 4
 A substitute Judo instructor allowed
  students to practice sparring unsupervised
  after the class, in a room rented at a
  University, had ended.
 The regular instructor was not present.
 A novice student lost his balance, hitting a
  smaller student on the chin, rendering him a
 Who is liable for this loss and why?
           Case Study 4

 Lam v. University of Windsor
 The University, as occupier, was found 1/3
  liable for not monitoring the activities and
  for not checking the credentials of the
 The substitute instructor and the regular
  instructor were each held 1/3 liable for
  improper supervision
            Other Precedents
   Niblock v. Pacific National Exhibition
    –   Nibloc consumed alcohol at exhibition
    –   Fell over low rail on stairs
    –   Sustained serious spinal injury
    –   Exhibition 75% liable/Niblock 25%
    –   Foreseeable that an intoxicated person could
        fall over the low rail
          Other Precedents
   Thompson v. Newfoundland
    – Thompson slipped on icy steps of a
      Government building
    – Icy steps were considered an unusual hazard
    – Employees should have been aware

    – Generally, ice in Nf and Lab are not unusual
      hazard but all reasonable steps are to be taken
      to protect public once hazard identified.

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