The variables "in play" in the hospitality sectors--the bottle, the bed and the steak filet--mean management had better be prepared to make some careful bets. Throw in a poker game or two, and it's not hard to see how easily the odds can swing against you. The most astute hotel, casino and resort managers have at least two traits in common. They always know "when to hold 'em" and "when to fold 'em."
Running a hotel, resort or casino is no joke. With guests going in and out 24 hours a day, hundreds of employees and properties located in hurricane and earthquake-prone areas, mitigating risk is a huge undertaking. Something as simple as a power outage---such as an incident recently experienced at the Bellagio Hotel and Casino in Las Vegas--can result in big business interruption exposures, not to mention grumpy guests and gamblers.
"There are constant challenges, but [hospitality] is one of the most exciting industries in which to work," says Lance Ewing, vice president of risk management at Caesars Entertainment in Las Vegas. For Ewing, the industry became even more exciting when Harrah's announced in July that it would buy Caesars Entertainment Inc. in a transaction valued at $9.44 billion. (Under terms of the agreement, Caesars shareholders will receive an aggregate of $1.8 billion in cash and 66.3 million shares of Harrah's common stock.)
Safety and security, workers' compensation exposures, property damage, employment practices liability and fleet safety are all major concerns for the hospitality industry.
"When you have food, alcohol and beds all in one location, it adds up to big risk," says Tom Cleary, vice president of hospitality at Acordia, the Clearwater, Fla.-based insurance broker.
As a guest, you want to feel safe and have an enjoyable experience when visiting a hotel, resort or casino. In order to make your stay as comfortable as possible, there are numerous issues "behind the scenes" on which owners of hospitality venues need to focus.
Protecting employees is a key area of concern. On the workers' comp side, they are exposed to slips and falls, lifts and strains, kitchen accidents and, at larger resorts, issues of engineering and landscaping. Because housekeeping and room service employees are typically low-wage, low-skilled workers, hotels and resorts often face a high turnover rate. That ultimately means more claims.
From a general liability perspective, hotels and resorts are frequently dealing with frivolous claims, guest damage to property, theft and robberies, risks associated with pools, beaches and other water features. Resorts also have to protect themselves from exposure to risks from food-borne illness.
On the property side, business interruption is a huge issue. "Many large, higher-end resorts are located in tough areas to place business, such as earthquake and hurricane-prone zones, ski resorts and beach resorts," says Cleary. No matter where a property is located, it's important to identify what the inherent risks are and where claims are coming from in order to implement appropriate programs to mitigate potential losses.
RENEWED ATTENTION TO SAFETY AND SECURITY
"The attention given to security by the hospitality industry reached an all-time high shortly after Sept. 11," says Janice Schnabel, senior vice president and national hospitality practice leader at Marsh in Portland, Oregon. "While security has always been a major concern for the industry, we saw more properties contracting with outside security personnel, enlisting the help of off-duty police officers and more structured in-house security programs."
Because terrorism is a major concern for hotels in high-risk areas, many chains and resorts have begun working with federal, state and local law enforcement to address building operations and security strategies, says Kevin Maher, vice president, governmental affairs, at the American Hotel and Lodging Association in Washington D.C.
"We have formed partnerships with the U.S. Department of Homeland Security and real estate interests to share industry-specific information and concerns such as how hotels can better manage the flow of people and baggage in and out of their properties and long-term strategies to keep properties and patrons safe," he says.
Terrorism is also a major concern from a workers' compensation perspective. "If something happens and employees are injured on the job as a result of a terrorist event, we're at risk," says Gerald Beauchamp, vice president of risk management at Dallas-based Wyndham International. While it's impossible to determine where or what type of losses could occur from a terrorist attack, hotels can take certain measures to mitigate potential losses.
Having a specific emergency response plan and testing it on a regular basis is extremely important. Business continuity plans, emergency evacuation plans, fire protection systems and security plans should all be in writing and put into practice on a regular basis.
LOS-PREVENTION INCENTIVES
Workers' compensation has always been a major area of concern for the hospitality industry. "Employee turnover is a huge part of what drives 'workers' comp costs, and the hotel industry typically has about a 160 percent turnover rate, which makes it a major concern," says Schnabel. "Many properties don't spend a lot of time on training because employees don't tend to stick around, so safety isn't built into the employee culture." But hotels that do focus on loss control can have a significant impact on workers' comp costs and claims.
"We place a major focus on loss prevention, employee safety and preventing employee and guest accidents," says John Matthews, corporate director, risk management, at Harrah's Entertainment Inc., based in Memphis, Tenn. "While high employee turnover is difficult to address in this industry, we begin focusing on safety training at an employee's orientation." Harrah's has safety programs at all its properties and uses an incentive program to encourage employees to report problems. Each time an employee reports a safety problem they receive a 'safety chip,' which they can later redeem for gifts. The program has enabled the company to reduce its OSHA recordable rate for the last four years, notes Matthews.
At Boyd Gaming Corp. in Las Vegas, Nevada, an employee-focused environment has led to a reduction in comp costs and claims. "We created a company mascot, Safety Sam--named after the company's founder, Sam Boyd--to promote a safe work environment," says Stan R. Smith, director of risk management, corporate security and general services. "Posters are placed throughout the properties in areas where claims are occurring, and employee contact forms are filled out for all incidents. We conduct annual environmental, health and safety inspections at each location and have all the necessary monitoring and testing equipment to stay current on safety issues," he stresses.
Return-to-work programs work well in the hospitality industry, as there is such a variety of jobs employees can perform. "We provide detailed protocols for the hotel safety staff and claims adjusters to return employees to work as soon as possible and use light duty programs to help employees return to their full-time jobs," says David Little, vice president of risk management at Hilton Hotels Corp., in Beverly Hills, Calif. "We try to make sure employees are doing their jobs as safely as possible, but if an accident does occur, we handle claims as efficiently as possible and focus on returning employees to work as soon as they're physically able to do so."
PROTECTING PROPERTY
Another major exposure for the hospitality industry is theft. Unfortunately, notes Marsh's Schnabel, guests typically don't use in-room safes because they're too small to hold much of anything, and the safety deposit boxes behind the front desk often aren't used.
"That's where a good crime policy comes into play," she says. Potential losses, of course, extend far beyond guest property issues. "When it comes to casinos, a more extensive crime policy with extra bells and whistles is often needed to cover items such as gaming chips, excess cash and protection from embezzlement," says Steven Batzer, gaming practice leader at Marsh in Atlantic City, N.J.
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An emerging area of liability is information technology exposures, the hospitality executives say. Many casinos today link their slot machines with a central computer system that can show what any person is doing at any machine. Casinos are now beginning to tie table games, food and beverages, rooms and retail transactions into these systems, building a huge repository of information that can be used for marketing. "All of this information sitting in a centralized computer system can create new exposures," says Batzer.
While privacy laws determine how such information can be used, the potential loss of information if the system goes down and the need to rebuild the entire comps or marketing program could be devastating--and difficult to insure against. "It's a new and complex exposure and something for which there is no standard policy form," warns Batzer.
FLEET SAFETY
How guests travel to and from a casino and how their personal vehicles are treated while they're gambling away the evening is yet another area of concern for the hospitality industry.
"The loss ratio for auto liability in the hotel industry is the highest relative to other industries largely driven by valet services," says Schnabel. "Many hoteliers are now contracting these services out to a third party to protect themselves from liability. In addition, most hotel vehicle safety programs--and underwriters--require that drivers of hotel or resort shuttles be age 25 or older."
Because there are often multiple users of vehicles when it comes to airport shuttles or hotel auto fleets, it's important to have a good driver recruitment and training program in place. "Typically, companies should have a policy in force on how to safely shuttle guests back and forth and how vehicles should be used and maintained," says Acordia's Cleary.
No matter how large or small a hotel, resort or casino, executives say it's important to work with an insurance carrier and/or broker fluent in the unique characteristics of the industry, says Ewing, of Caesars Entertainment. "We invite our underwriters to visit our properties, build relationships with our staff and work closely with our broker, TPA and claims administrators," he says. "It's a relationship built on trust, which ultimately helps minimize exposures."
INDUSTRY RISK REPORT
HOTELS, CASINOS, RESORTS
Now, here are corporations with risk management issues--right down to the valet parking. Neglecting to protect assets in the hospitality sector will keep even the most skillful risk executives up at night, even if they ponder the challenges from the comforts of a five-star hotel or win big at the slots on their days off. But then again, the best risk managers who work for big-name casinos and resorts are America's most likely to know how to "stack the deck"--in their favor, of course. Find out how these "houses of hospitality" always win.
WYNDHAM INTERNATIONAL Dallas, Texas
Wyndham International Inc. offers upscale and luxury hotel and resort accommodations through proprietary lodging brands and a management services division. Wyndham International owns, leases, manages and franchises hotels and resorts in the United States, Canada, Mexico, the Caribbean and Europe. It is one of the largest U.S.-based hotel owners/operators with a portfolio consisting of 190 hotels with over 50,900 guest rooms.
Chief risk executive: Gerald Beauchamp, Vice President, Risk Management
CEO: Fred J. Kleisner
CFO: Richard A. (Rick) Smith
Board audit chair: Adela Cepeda
Net revenue: $1,253.7 million
Net income: ($389.6) million
Number of employees: 22,000
Primary broker: Marsh
Captive: Wynright Insurance Co Ltd. (Bermuda); Wynsirf Insurance Co Ltd. (Bermuda)
Risk exposures include: The impact of terrorist activity or war, threats of terrorist activity or war and responses to terrorist activity on the economy in general and the travel and hotel industries in particular; travelers' fears of exposure to contagious diseases; and legislative or regulatory requirements
Risk strategies: Wyndham maintains a paid loss deductible insurance plan for commercial general liability, automobile liability and workers' compensation loss exposures related to its hotel operations.
MARRIOTT INTERNATIONAL INC. Bethesda, Maryland
Marriott International Inc.'s heritage can be traced to a small root beer stand opened in Washington D.C., in 1927 by J. Willard and Alice S. Marriott. Today, Marriott International has more than 2,600 lodging properties located in the United States and 68 other countries and territories. Marriott Lodging operates and franchises hotels under multiple brands, including Marriott Hotels, Resorts & Suites, Renaissance Hotels, Resorts & Suites, The Ritz-Carlton Hotel Company and Ramada International Hotels & Resorts.
Chief risk executive: Bradley Wood, VP, Risk Management
CEO: J.W. (Bill) Marriott Jr.
CFO: Arne H. Sorenson
Board audit chair: Lawrence H. Small
Net revenue: $9,014 million
Net income: $502 million
Number of employees: 128,000
Primary broker: Withheld
Captive: C L. International Insurance Co Ltd. (Bermuda); F. L. Insurance Corp. (Hawaii); Marquis Insurance Corp. (Hawaii)
Risk exposures include: Decreases in travel resulting from recent economic conditions, the military action in Iraq, and the heightened travel security measures that have resulted from the threat of further terrorism; the threat and spread of communicable diseases such as SARS or the uncontained spread of any contagious or volatile disease; the proliferation of Internet reservation services, Internet room distribution and reservation channels, which may adversely affect the rates the company may charge for hotel rooms and the manner in which it can compete in the marketplace
Risk strategies: Marriott is self-insured for certain levels of property, liability, workers' compensation and employee medical coverage
CAESARS ENTERTAINMENT INC. Las Vegas, Nev.
Formerly Park Place Entertainment Corp., Caesar's Entertainment is the world's largest gaming company. Park Place brands include Caesars, Paris, Bally's, Flamingo, Hilton and Grand Casinos. The company, which has more than 29,000 hotel rooms and 2,000,000 square feet of casino space, has operations in five countries--the United States, Canada, South Africa, Uruguay, and Australia--and cruise ships (Crystal Cruises) in international waters.
Chief risk executive: Lance J. Ewing, Vice President or Risk Management
CEO: Wallace R. (Wally) Barr
CFO: Harry C. Hagerty
Board audit chair: Gilbert L. Shelton
Net revenue: $4,172 million
Net income: $46 million
Number of employees: 55,000
Primary broker: Marsh, Willis
Captive: No
Risk exposures include: Disruptions in air travel; natural disaster or calamity; the establishment of gaming operations on Native American lands in the states of New York, California, Arkansas and any other states near existing operations; The expansion of state-owned or mandated casinos in existing markets and adjoining states; changes in government regulations and the results of periodic reviews and audits by the governmental authorities; wind and flood damage from storms
Risk strategies: Caesar's is self-insured for various levels of general liability, workers' compensation and employee medical insurance coverage
HARRAH'S ENTERTAINMENT INC. Las Vegas, Nev.
Founded more than 60 years ago, Harrah's Entertainment, Inc. is one of the most recognized and respected names in the casino entertainment industry. It operates 26 casinos in 13 states under the Harrah's, Harveys, Rio and Showboat brand names.
Chief risk executive: John Matthews, Corporate Director, Risk Management
CEO: Gary W. Loveman
CFO: Charles L. Atwood
Board audit chair: Barbara T. Alexander
Net revenue: $4,126.2 million
Net Income: $292.7 million
Number of employees: 41,000
Primary broker: Withheld
Captive: Aster Insurance Ltd. (Bermuda)
Risk exposures include: Construction factors, including delays, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters and building permit issues; changes in laws (including increased tax rates), regulations or accounting standards; litigation outcomes and judicial actions, including gaming legislative action, referenda and taxation; acts of war or incidents stemming from terrorist activity
Risk strategies: Harrah's is self-insured up to certain limits for costs associated with general liability, workers' compensation and employee health coverage. As of December 31, 2003, it had total self-insurance accruals reflected on our consolidated balance sheet of $89.3 million
MGM MIRAGE Las Vegas, Nev.
Continued from page 2.
MGM MIRAGE owns and operates 14 casino resorts located in Nevada, Mississippi, Michigan and Australia, and has investments in two other casino resorts in Nevada and New Jersey. Its portfolio of brands includes Bellagio, MGM Grand. The Mirage, Treasure Island, New York--New York, Boardwalk Hotel and Casino and 50 percent of Monte Carlo, all located on the Las Vegas Strip. The Company is also a 50-percent owner of Borgata, a destination casino resort at Renaissance Pointe in Atlantic City, New Jersey.
Chief risk executive: Paula Gentile, VP Of Operations and General Counsel
CEO: J. Terrence (Terry) Lanni
CFO: James J. Murren
Board audit chair: Roland Hernandez
Net revenue: $3,908.8
Net income: $243.7
Number of employees: 43,000
Primary broker: Willis
Captive: MGMM Insurance Co. (Vermont)
Risk exposures include: Fluctuations in interest rates related to the company's significant indebtedness; potential for loosening of gaming restrictions in other states, particularly California; large-scale construction risks associated with a new casino facility to open January 2006; a recession or economic slowdown, which could cause a reduction in visitation to resorts; the cost and availability of air service; intense competition to attract and retain qualified management and other employees
Risk strategies: MGM Mirage limits its exposure to interest rate risk by managing the mix of its long-term fixed rate borrowings and short-term borrowings under its bank credit facilities and commercial paper program. It uses interest rate swap agreements to convert $400 million of its fixed rate debt to floating rate debt
STARWOOD HOTELS & RESORTS WORLDWIDE INC. White Plains, N.Y.
Starwood's status as one of the largest hotel and leisure companies resulted from the 1998 acquisition of Westin Hotels & Resorts Worldwide Inc., the acquisition of ITT Corporation--renamed Sheraton Holding Corporation--and the acquisition of Vistana Inc. (renamed Starwood Vacation Ownership Inc.) in October 1999. The company's brand names include Sheraton, Westin, W and Four Points by Sheraton.
Chief risk executive: Anthony Rodolakis, VP, Risk Management
CEO: Barry S. Sternlicht
CFO: Vasant M. Prabhu
Board audit chair: Daniel W. Yih
Net revenue: $3,779 million
Net income: $309 million
Number of employees: 110,000
Primary broker: Aon
Captive: Westel Insurance Company (Vermont)
Risk exposures include: The timing and robustness of a recovery from the current global economic downturn; domestic and international political and geopolitical conditions; travelers' fears of exposures to contagious diseases: changes in operating costs including energy, labor costs (including the impact of unionization), workers' compensation, health-care related costs and insurance
Risk strategies: Through its captive insurance company, Starwood provides insurance coverage for workers' compensation, property and general liability claims arising at hotel properties owned or managed by the company through policies written directly and through assumed reinsurance arrangements
HILTON HOTELS CORP. Beverly Hills, Calif.
Conrad Hilton purchased his first hotel in Cisco, Texas back in 1919. The first hotel to carry the Hilton name was built in Dallas in 1925. In 1943, Hilton became the first "coast-to-coast" hotel chain in the United States. In 1949, Conrad Hilton purchased the Waldorf Astoria. Hilton has several world-renowned. marquee properties, some of which are: Beverly Hilton, Cavalieri Hilton in Rome, Hilton Athens, Hilton San Francisco, Hilton New York, Hilton Hawaiian Village, Hilton Waikoloa Village, Paris Hilton and others.
Chief risk executive: Douglas Gafner, Director, Risk Management
CEO: Stephen F. Bollenbach
CFO: Matthew J. Hart
Board audit chair: John L. Notter
Net revenue: $3,819 million
Net income: $164 million
Number of employees: 70,000
Primary broker: Aon
Captive: Hilton Insurance Corp. (Vermont)
Risk exposures include: Supply and demand fluctuations for hotels and timeshares; the financial condition of the airline industry and its impact on travel; potential downgrades by the rating agencies and their effect on the cost and availability of new debt financing; the impact of outbreaks of infectious diseases on travel and the demand for hotel rooms; further increases in the cost of litigation
Risk strategies: The company is self-insured for various levels of general liability, workers' compensation, employee medical and dental insurance coverage
MANDALAY RESORT GROUP Las Vegas, Nev.
Mandalay Resort Group's operations consist of 12 wholly owned resorts in Nevada and Mississippi, as well as investments in four joint ventures with operating resorts in Nevada, Illinois and Michigan. Approximately 75 percent of its operating income comes from properties in Las Vegas, its core market. This "Mandalay Mile" consists of three interconnected megaresorts on 230 acres, and includes its flagship property. Mandalay Bay.
Chief risk executive: Scott Kent, Director, Corporate Risk Management
CEO: Michael S. Ensign
CFO: Glenn W. Schaeffer
Board audit chair: Michael D. McKee
Net revenue: $2,491.1 million
Net income: $149.8 million
Number of employees: 34,500
Primary broker: Withheld
Captive: No
Risk exposures include: The reappearance of a ballot referendum in November 2006, which, if passed, would ban gaming in Mississippi and force Mandalay to close its Mississippi gaming operations; any significant shortages of, and/ or substantial increases in the cost of energy; construction cost overruns; cash flow fluctuations resulting from the settlement of various legal proceedings; the potential for future terrorist attacks, as well as any hostilities which may develop between the United States and other countries, including the war in Iraq and its aftermath
Risk strategies: The company is self-insured up to certain limits for costs associated with workers' compensation and employee medical coverage. At January 31, 2004, it had total self-insurance accruals reflected on its balance sheet of $10.5 million
BOYD GAMING CORP. Las Vegas, Nev.
Boyd Gaming has a long history in the casino business dating back to 1962, when the Boyd family purchased their first casino in Nevada. Today, Boyd Gaming Corporation is one of the top casino entertainment companies in the United States. In addition to multi-million dollar renovations and expansions recently completed or underway at many Boyd's properties, the July 2002; grand opening of the Borgata in Atlantic City--co-owned with MGM Mirage--was a defining moment in the company's history.
Chief risk executive: Stan Smith, Director, Risk Management
CEO: William S. (Bill) Boyd
CFO: Ellis Landau
Board audit chair: Michael Maffie
Net revenue: $1,253.1 million
Net income: $40.9 million
Number of employees: 13,835
Primary broker: Withheld
Captive: No
Risk exposures include: Changes in complex governmental gaming regulation and taxation policies; uncertain outcome of pending litigation; risks related to pending and future acquisitions including difficulties in integrating the operations, technologies and personnel of the acquired companies, the diversion of management's attention from other business concerns and the potential loss of key employees of the acquired companies
Risk strategies: In 2002, Boyd's created a policy aimed at managing risks associated with current and anticipated borrowings, such as interest rate risk and its potential impact on fixed and variable rate debt. The firm may utilize derivative contracts that effectively convert its borrowings from either floating rate to fixed or fixed rate to floating
MOHEGAN TRIBAL GAMING AUTH. Uncasville, Conn.
In 1996, the Mohegan Tribal Gaming Authority opened a gaming and entertainment complex known as Mohegan Sun. Mohegan Sun operates in an approximately 3 million-square-foot facility, which includes the Casino of the Earth and the Casino of the Sky (which resides under the world's largest, most spectacular planetarium dome, decorating the casino with an ever-changing display of constellations) and a hotel and convention center.
Chief risk executive: Mary Lou Hoopmann, Director of Risk Management, Mohegan Sun Casino
CEO: William J. Velardo
CFO: Jeffrey E. Hartmann
Board audit chair: Not subject to public disclosure
Net revenue: $1,041.8 million (2002)
Net income: $100 million
Number of employees: 10,203
Primary broker: Withheld
Captive: No
Risk exposures include: Any further acts of terrorism in the United States; changes in federal or state tax laws; changes in gaming laws or regulations (including the limitation or suspension of licenses required under gaming laws and regulations)
Risk strategies: The Mohegan Tribal Gaming Authority is self-insured up to certain limits for costs associated with workers' compensation, State of Connecticut unemployment and employee medical coverage
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