Lloyd's has launched a new parametric profit protection policy for the hotel industry.
In a statement, Lloyd's said that the new product uses a "parametric" trigger, so a customer is automatically indemnified if any unforeseen event leads to reduced profits.
This is the first policy developed by Lloyd's product innovation facility, which was launched in June to accelerate the development of insurance and reinsurance products for new and emerging risks. The facility is backed by a group of 24 Lloyd's syndicates who together have committed over £100 million of underwriting capacity.
According to Lloyd's, the new product protects hotels from lost profits, for example, due to unexpected events occurring within their market that are outside the control of the hotel. As an example, Lloyd's cited the terrorist attacks that occurred in Paris three years ago, which had a catastrophic impact on the city's hotels, with revenues said to be down by 15 percent that summer and high-end hotels reporting declines of between 30 percent and 40 percent as wealthier tourists stayed away. In the United Kingdom, hotels, alongside other businesses, suffered significantly in Salisbury after the Novichok nerve-agent incident early last year that saw many parts of the city cordoned off during the police investigation and subsequent year-long clean-up, deterring tourists.
The product defines an insured event as the difference between forecast and actual market trading data widely accepted by the hotel industry; the need for named perils has been abolished.
Lloyd's explained that once an insured event occurred, a pay-out was triggered, protecting hotel profitability, which could be used to reduce cash flow volatility, negotiate contractual agreements, and unlock contingent liability exposures for many parties in the hotel and hospitality sector.
The new hotel product is led by Tokio Marine Kiln and additionally supported by the following facility members: Chaucer, Munich Re Syndicate, Beazley, Faraday, and Axis.
Tom Hoad, head of innovation at Tokio Marine Kiln and chair of the product innovation facility, said, "Hotel owners and operators know all too well how unexpected events can suddenly impact trading. This new product will provide much-needed peace of mind for them to remove some of the volatility that their industry can experience through issues over which they have absolutely no control."
Lloyd's chief executive officer, John Neal, added, "Lloyd's has a well-deserved reputation as the home of insurance innovation and I'm delighted to see the speed with which the new product innovation facility, whose capacity has more than doubled in the past few months, is moving. Using the combined expertise, insights, and entrepreneurial spirit of all those involved, we're developing, incubating, and launching exciting new products to meet the very real needs of today's world."
Marc Bentley, from InterContinental Hotels Group, said, "It's a credit to Tokio Marine Kiln, and the supporting members from the PIF, that new products are being developed to address specific risk financing challenges that are outside of traditional insurance products. In today's competitive world the challenges we face are complicated and unique, and the agility of innovative risk financing solutions are key to support our business objectives."
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].