Hospitality clients underestimate cyber risks – and it’s leaving them exposed

The hospitality industry has always carried a complex risk profile, from liquor liability to slip-and-fall incidents. But one risk that many operators continue to overlook is cybercrime – even as digital dependence grows across restaurants, bars, and hotels.

Julia De Stefano (pictured), senior underwriter and team lead for hospitality at South Western Group (SWG), told Insurance Business that the sector’s blind spot around cyber exposure is becoming harder to ignore.

“Cyber is always going to be a factor there, now that the majority of restaurants are using an online POS system,” she said. “That’s not the number one risk you think of when you think of hospitality, especially for the client … so there’s a lot more exposure there now, and it’s becoming more and more [serious].”

The cyber awareness gap

Despite these growing exposures, De Stefano said awareness among insureds remains low. Many owners and managers continue to see cyber insurance as unnecessary, assuming hackers are more likely to target big corporations than independent operators. That disconnect leaves them vulnerable.

“I would say the awareness is improving, but there’s still a significant gap,” she said. “I think that there’s a lot more onus on the brokers to be talking about all the risk exposures. Likewise, I think there’s a lot of onus on the insurers to kind of say: ‘Hey, we have this coverage available if you would like to purchase it.’”

She stressed that now is an opportune time for hospitality businesses to add cyber coverage, while premiums remain relatively affordable. “Right now is a good time to get cyber included, because it is just starting to become a bigger issue,” De Stefano said. “So it’s still pretty cheap to add it on to your coverage.”

For brokers, that affordability presents a clear talking point. Cyber risks may not be top of mind for hospitality clients, but adding the protection today can mean the difference between absorbing a small endorsement cost or facing hundreds of thousands in out-of-pocket losses later.

Claims severity on the rise

While cyber is climbing the risk agenda, De Stefano said traditional exposures remain highly relevant – and in some cases, more expensive than ever. She pointed to claims severity as a major post-pandemic trend.

“I would say I’ve seen a shift in both [frequency and severity] post-pandemic,” she said. “During the pandemic, everything was really slow because the hospitality industry was more or less closed, so we were limited to takeout only, which reduces a lot of risk for clients. Post-pandemic, I saw the claims rise back up. Nothing crazy, but I would say the severity has been impacted probably the most on the liability side of things.”

Litigation costs, in particular, have escalated. “Specifically, I find litigation costs are becoming a lot higher … and that is leading to very pricey and long-lived claims,” she said.

That increase in severity is reshaping underwriting strategies. Even in a softer market, where competition is pushing rates down, the fundamentals – claims history and risk mitigation – remain decisive.

“Hospitality is one of the sectors that have the most claims, just because there’s a lot of risk there,” De Stefano said. “So claims history and mitigation [are] really important for us.”

Extreme weather pressures

Another key influence is the growing impact of extreme weather. With Canadian insurers already grappling with record natural catastrophe losses in 2024, hospitality operators are feeling the effects in their property coverage.

“Extreme weather conditions [are] becoming more and more of an issue,” De Stefano said. Hotels, restaurants, and entertainment venues often occupy large, high-value properties, meaning any damage from flooding, storms, or wildfires can be costly to repair or replace. Rising construction costs only add to the strain, driving higher limits and, in many cases, shared subscription placements among multiple insurers.

Liquor liability steady, but more expensive

While liquor liability has long been a cornerstone risk for hospitality, De Stefano said its nature has changed little in recent years. The exposures – alcohol-related incidents, overservice, and claims tied to impaired patrons – remain consistent. What has shifted is the cost of addressing them.

“You’re going to have very similar claims 10 years ago in the liquor liability side as you do now,” she said. “The only difference is they cost a lot more to deal with now.”

As with liability claims more broadly, rising litigation expenses are driving up the price of settlements and defense, even when the underlying exposures haven’t changed dramatically.