Boozy business: nightlife underwriting then and now

Bars and taverns may have dotted the streets of Canadian towns and cities for centuries, but the specialty market that backs them has seen demonstrable changes in as little as a few decades. Doreen Teoh, senior underwriter with South Western Insurance Group Ltd., has been in the industry for over 30 years, and in that time, she’s witnessed a considerable evolution in how underwriters have approached alcohol-based establishments, particularly within the food and beverage industry. Most notably, she’s observed a shift from clearly delineated domestic and MGA markets to one where both sectors wish to participate. “Back in the day, there was a clear distinction between the MGA world and the domestic markets on who would insure what,” she said. “Historically, the small, little licensed restaurants and fine dining restaurants were not coming our way unless an MGA decided to put together a restaurant program. But then any risk with higher liquor would come our way – the pubs, the bars, the nightclubs, the adult entertainment.” By contrast, in the current market, both domestic and MGA actors are actively drawn to hospitality and its comparably larger premiums, especially in volatile classes where liquor sales are prevalent. “There is good volume if you’re starting up. You tend to go for things that produce premiums of $5, $10 or 25,000 dollars, rather than $2,000,” she said. Of course, these higher premiums are directly associated with the sector’s substantial risk exposure. When clients file a claim, it affects not just the affiliated MGA, but the overall rating of the entire class. In fact, since hospitality is historically volatile, “you know a loss is going to come, you’re just not sure when.” As a result, retail brokers in this space need to carefully evaluate the MGA specialists with which they are doing business. The more responsible MGAs are those that are constantly enhancing offerings and establishing insurer relationships in order to minimize the damage from any potential legal action, Teoh notes. Otherwise, she says, “If you’re starting off new, one hit will kill you within the first year.” Such industry-responsive MGAs have become more discriminating and are better able to customize based on establishments’ unique risk profiles. For example, nightclubs were once a difficult class of business to write because it seemed as if claims were inevitable. But then some specialists decided to make a distinction between what was a nightclub and what was a lounge, and creating this division ended up being an industry game changer. “All of sudden there was another level of what’s a nightclub versus what’s a lounge,” Teoh said. “Then as underwriters, we had to be able distinguish what were the finer points of determining those classes. So as things change, you always have to be working with how things are evolving, which affects your pricing or your exposure.”