Hospitality risks financed using a captive are good for both the owner and agent.

1. _ Idea Exchange Captive Edge
Hospitality Risks:
A Game for Captives
Why a Captive Solution Might Grow Your Hospitality Book, and Revenue Too
Kramer
By Chris Kramer
ompare the estimated $30 billion strategic benefits for both the client and the Hospitality Captive Approach
C in after tax profits that the u.s.
property/casualty marketplace will
likely book for 2009 to the year
end results of the hospitality industry, whose
agency. For the client, there may be the
opportunity to maintain reduced insurance
costs while deriving income from undcrwrir-
ing profits and investment income from the
How would an agency use a captive
approach with its hospitality clients? An
agency needs to recognize that hospitality
owners have concerns with retaining risk
lodging (occupancy near 56 percent), restau- captive (in addition to tax benefits if con, that they cannot transfer to the insurance
rants and entertainment segments are expe' structed properly). The producer, on the market and owners are looking for legtti-
riencing some of their worst performance in other hand, successfully increases his or her mate ways to preserve their firms' assets or
decades. However, the hospitality industry value to the client by offering a tailored risk to use the captive as a profit center.
For example, a recent risk report for the
Hospitality owners have concerns with retaining risk hospitality industry listed several concerns
that make the transfer of risk to a traditional
that they cannot transfer to the insurance market insurer either very expensive or undesirable.
These concerns not only include natural
and owners are looking for legitimate ways to catastrophe risks such as earthquakes,
preserve their firms' assets or to use the captive as tsunamis and hurricanes, but also include
a profit center. risks like food-borne illnesses, losses of repu'
tation and intellectual property. All of these
concerns may lead to loss or interruption of
will have at least one bright spot - commer- retention strategy, thus earning some insula, income.
cial insurance premiums for insuring hospi- tion from competitive forces and furthering Another increasing concern within the
tality risks have come down significantly a partnership that promotes loyalty from the hospitality industry, especially lodging oper,
since the soft market began six years ago client. ations, is credit card theft. According to
While the insurance agent or broker may Captives are no longer a hard
be able to offer competitive premiums to market tool, nor are they only
soften the blow of a struggling economic reserved for conglomerates that
recovery to hospitality industry clients in hold large self insured reten-
2010, the revenue that is generated from the tions or dcductibles. Proof of
premium may be lower than what was gener, the increasing popularity of
ated last year. Indeed, hard market prognos, captives can be seen in the
ticators may assume that with $450 billion in surge of new captives which
capacity, a general turn in the market may formed in 2009 despite an ongo-
not happen until late 2011. ing soft market. Vermont,
Agency producers and their owners, faced Kentucky, Utah and South
with perhaps another year or two of a hyper, Carolina all reported Significant
competitive marketplace and loss of revenue, increases in new captives.
need to take action to preserve their busi- Washington, IrC; a domicile
nesses. One proven strategy is to differenti- that has some of the most
ate their business by niche or specialty, such advanced protected cell captive
as a focus on various segments of the hospi- statutes in the country, saw an increase of 14 Trustwave, a provider of security and consul,
tality industry or a specialized service like a new captives, as well as a captive in the hos-- tative services, hackers targeted hotel net,
captive insurance strategy. pitality industry that provides terrorism works more often than any other network in
insurance, including nuclear, biological, 2009, aiming to acquire credit and debit card
Benefits of a captive Program chemical and radiological coverage its 20 information. In fact, stolen receipts from just
A captive insurance program offers several U.S. hotels. continued on page 1Il8
N6 I INSURANCE JOURNAL-NATIONALREGION AprilS, 2010 www.insurancejournal.com

2. _ Idea Exchange captive Edge
Hospitality Risks, continued from page N6
three hotels in San Antonio recently repre- With the increasing
sented data for 17,000guests. Losses like the popularity of protect-
incident in San Antonio may be insured to a ed cell companies,
degree, but the loss of reputation may not be, some insurance com-
which is where a captive may help. panies and captive
The agent or broker who can diversify his managers may be able
or her product and service value proposition to offer their captive
to hospitality clients by offering a captive structure or the hcspi-
strategy in concert with traditional insur- tality owner may
ance services makes a smart move, especially choose to build his or
if the agent or broker is proactive This diver- her own. Both ways to
sification not on Iy demonstrates to the client set up and form a cap-
(or prospect) that the agent is client focused,
but the agency may also gain a reputation
within the industry as innovative and solu-
tive have become easi-
er. Costs may vary, but
the soft market has
-
tion-oriented, thus accompbshing its differ- also brought down fees and expenses associ- agencies recognize that fee-based income
entiating strategy. ated with captives. from the use of a captive strategy, while not
Acquiring the skill sets and experience Ultimately, the successful agent using a generally tied to the insurance cycle, may
that is required by an agency to build out captive solution with his clients may increase increase client loyalty and retention rates. III
and offer a captive solution to hospitality his book of business, as well as revenue, in
clients takes time and capital. However, by any market. Fees generated from the use of Kramer is director of marketing at UlLICO Casualty
developing a relationship or joint venture captives help to augment commission from Group, a Washington. D.C.-based group offering alternative
with a captive consultant or manager may the placement of "wrap around" insurance risk solutions including group and agency captive solutions.
shorten time allotted for the learning curve. coverage that the captive may not offer. Many Ernail: ckramer@ullico.com.