Lloyd's launches new parametric profit protection policy for hotel industry

The new solution 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 Launchpad, which was launched in June to accelerate the development of insurance and reinsurance products for today’s new and emerging risks. The Facility is backed by a group of 24 Lloyd’s syndicates who have together committed over £100 million of underwriting capacity.

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. For example, the terrorist attacks which occurred in Paris three years ago had a catastrophic impact on the city’s hotels, with revenues said to be down by 15% that summer and high-end hotels reporting declines of between 30% and 40% as wealthier tourists stayed away. In the UK, hotels, alongside other businesses, suffered significantly in Salisbury after the Novichok nerve-agent incident early last year which saw many parts of the city cordoned off during the Police investigation and subsequent year-long clean-up, deterring tourists.

As 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 exemplifying the creativity and flexibility of the Lloyd’s market.

Once an insured event occurs, a pay-out is triggered protecting hotel profitability and thus can 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 Lloyd’s Product Launchpad members: Chaucer, Munich Re Syndicate, Beazley, Faraday and Axis.