Four Risks on Which Hotel Casinos Can't Gamble
By Sean Young Associate Vice President, Distinguished Programs | January 05, 2020
Owners of hotels face numerous risks on a daily basis, but for operators of hotel casinos, the amount of risk exposure rises faster than a progressive jackpot on a slot machine.
From an insurance standpoint, casino hotels turn the tables on the traditional hotel risk management equation. Limited service or mid-scale, business class hotels tend to be transient, with guests checking in and out constantly. Even when they're on site, guests at these hotels perpetually prepare to leave, whether it's to visit with family, enjoy a lunch date, catch a movie or head to a business meeting. That's why these hotel classes tailor their services around efficiency.
But with hotel casinos, the opposite is true. Here, the casino is the biggest attraction. That means guests stay on site longer, which raises overall risks. Hotel casinos almost always also include bars and live entertainment. Alcohol increases risks for on-site incidents and altercations, as well as off-site liquor liability. And an events center means mass gatherings, a hot-button issue for insurers with the 2017 Mandalay Bay shooting still fresh in everyone's minds.
Not all risks are equal. Let's explore the four biggest risks hotel casinos face:
1. Wrongful Actions From Vendors
Almost every hotel casino contracts with transportation firms and security companies. They also may partner with vendors to provide additional activities for guests-everything from scuba driving and snowmobiling to helicopter rides or airplane tours, depending on your location and climate.
When an incident happens involving any of these vendors, hotel casinos often believe they have no risk exposure. But the truth is far different. Countless claims incidents have demonstrated where hotel casinos get pulled into a lawsuit involving wrongful actions from a third-party vendor. And most of these claims come with exorbitant price tags.
Consider this example. A bus is en route to your casino, filled to the brim with passengers, when it gets into a highway accident. The crash causes injuries and, sadly, fatalities.
You may think your hotel casino won't be liable because you don't provide the transportation, or because your ad isn't on the side of that bus. But if that bus company is so much as mentioned on your hotel casino's website, listed on a printed coupon, or named on a brochure or in a promotional package (such as providing free gaming or meal vouchers to bus passengers), your facility could be liable, and lawyers will come knocking on your door.
Such exposure also affects accidents involving any third-party amenities, such as injuries or fatalities suffered on boat tours, snowmobile rides or snorkeling adventures. Even though many of these activities may be held off site, you still may be held liable. One such instance exposed a hotel to liability where it didn't even list a vendor by name – it only mentioned that guests could take part in a specific activity during their stay – yet the hotel was found liable for an accident involving that very activity.
Reduce your exposure. Any time you work with a third-party company that's connected to your hotel casino in any way, ask them to show you their certificate of insurance. Make sure it names your hotel casino as an additional insured. And don't fall for it if a vendor tells you that you're covered at the $1 million limit required by your state. A lawsuit will most likely swallow that limit whole. It's recommended hotel casinos require third-party vendors to carry very robust limits, especially for higher-risk activities. Creating this clear level of contractual risk transfer is your best defense against potentially unseen risks.
2. Event Centers and Public Gathering Spaces
Up to $800 million. That's the amount MGM Resorts International has agreed to pay to settle thousands of liability claims stemming from the 2017 mass shooting at the Route 91 Harvest Festival. While horrific mass shootings and other acts of terror occur far less frequently than assault-and-battery or slip-and-fall cases, the Las Vegas shooting has radically changed the way insurers look at public gatherings.
Today, insurers see any venue where large groups of people gather as a real hot spot. That includes, in particular, any hotel casino that features an indoor or outdoor concert hall or any other type of entertainment venue. For chief underwriting officers, providing insurance coverage for an event at this type of venue has become increasingly difficult to write. There's less capacity in the insurance space, which means higher premiums for hotel casinos. In some cases, hotel casinos may need to go to the non-admitter market, which means the coverage may not be as comprehensive as with a standard insurer.
Yet hotel casinos can take many steps to lower the risk profile of an entertainment venue. One wise move many facilities make is increasing security presence at live events by bringing in a third-party company. This can go a long way toward reducing potential incidents. Making tight connections with local law enforcement entities-and having them cover your events-will provide additional police presence.
When exploring vendors, seek a security firm that provides training above and beyond that of your hotel casino's in-house staff. And build adequate risk transfer into your contract with that third-party entity.
While most hotel casinos do a good job of ensuring bag checks at all entry points, make sure they happen regularly any time you host a live event. Don't let any bag go untouched.
Also, ask your security team to review any risks to your venue. Outdoor spaces are easier to access and harder to control from a security standpoint, and that makes them generally more expensive to insure than an indoor space. Another red flag for underwriters: An events area adjacent to any buildings with a window or ledge that would give a potential gunman clear access to people in the crowd. These red flags weren't top of mind two years ago, but they are today, and hotel casino operators must address them.
As the amount of data hotel casinos and other businesses store continues to rise, so too does the cost of data breaches. According to the Ponemon Institute's 2019 Cost of a Data Breach Report, the average data breach for U.S. companies last year cost $8.19 million. That's a whopping 130-percent increase in 14 years.
Hotel casinos face some unique risks when it comes to cybercrime. First, because most offer rewards programs that cover both the hotel and the casino, they have more data on hand than other classes of hotels. Second, many hotel casinos have launched online casinos, creating an additional revenue stream-and opening numerous potential back doors to hackers.
The highest volume of cybercrime incidents seen in the marketplace are phishing attacks, where data thieves send an email from a seemingly reputable company and ask for personally identifiable information (Social Security or credit card numbers, for example). These emails trick unknown users (often your employees) into unwittingly surrendering this data, creating a breach.
Another cybercrime trend seen more recently is an increase in cyberextortion, where a hacker taps into a hotel casino's website-or an online casino-shuts it down and demands a ransom that can be large (hundreds of thousands of dollars) or small ($500).
While data thieves and crimes grow more sophisticated each year, so too do the tools hotel casinos can use to stop hackers.
While most hotel casinos today have adequate cyber liability insurance, many don't carry enough limit. Basing limits on the amount of data your property stores is the wise move for hotel casino operators. For hotel casinos with online casinos, limits of $50 million or more are strongly recommended.
If a hotel casino permits a third party to access its point-of-sale or booking system, that casino must make sure the vendor has adequate security in place. Hotel casinos also must stress the use of complex passwords, those containing a combination of uppercase letters, lowercase letters and special characters. And hotel casino operators should take a close look at their Wi-Fi access. Maintain separate access for guests and employees, and ensure your guest Wi-Fi is secure.
4. Slips and Falls
This category ranks No. 1 when it comes to the volume of claims submitted each year in the hospitality industry. The good news: hotel casinos are very protective of their image, which means their facilities upkeep and overall maintenance tends to be at a higher level than that of other hotel classes.
That said, hotel casinos should still take steps to reduce some common slip-and-fall incidents. Install slip-proof mats or strips in bathtubs and bathrooms. Secure toilet seats with metal bolts (plastic bolts may shear off, causing injury). Properly light any stairways. Keep elevators well-maintained.
Closely related to slip-and-fall incidents are injuries resulting from improperly trained employees. Invest in education to ensure your employees know what to do in emergencies-such as when guests are stuck in an elevator. Also make sure they know how to handle special requests, such as providing ADA-compliant guest rooms, and proper steps to take if that room is no longer available (The right response: Find an ADA-compliant room at a sister hotel; the wrong response: Insist the guest take a non-ADA-compliant room).
The rules of insuring hotel casinos are changing daily, and so too are the risks. Each decision a hotel casino makes-which types of activities it provides, which vendors it uses, what kind of crowd it attracts-brings a different risk profile. By making wise choices, transferring risk when applicable and talking with insurers about any exposures openly and honestly, hotel casino operators can reduce their odds of a devastating financial loss.
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