The Need for Insurance for the Hospitality Industry

In Ethiopia, the hospitality industry, which includes the hotel and tourism sub-sectors, has been registering progress. Official reports from the Ministry of Culture and Tourism show that the sector has never been better in terms of tourist flow and revenue. The sector is expected to record growth in the volume of inbound and outbound tourists in the years to come. In view of that, to hold up this growing industry in managing its risk exposure and keep the momentum going, the insurance industry should make the necessary insurance policies available. Not giving the sector the insurance cover it demands would greatly discourage travel and hampers the sector’s growth. As part of the government’s plan to develop the tourism industry, the insurance industry must also respond by providing the necessary coverage to the sector.

The Ethiopian government has realized the potential in the tourism industry and has taken several steps to make the country a tourism hub at least at the continental level. The country’s tourist arrivals in 2017 are projected to grow up by 5.7Pct than the preceding year, as per the PwC’s ‘Hotels Outlook: 2017-2021’ report.

The report also stated that Ethiopia is expected to heighten investment in the hospitality sector in order to engender more foreign exchange earnings. While the country’s economy enjoys considerable expansion, the hotel industry will also acquire benefits from an increase in the number of inbound travelers with the continual opening of some global brands. International hotel chains will likely increase their expansion and investment plans in Ethiopia.The projection also shows that Addis Ababa will keep on growing as a regional and continental business hub, supporting development in the hotel sector.

Facts and figures have shown that the insurance industry in Ethiopia has fallen short of deepening the insurance penetration which currently stands at below 1Pct. This is beneath the global emerging markets average of 2.7Pct. Insurance penetration is measured by the premiums underwritten against the Gross Domestic Product.

Studies have convincingly revealed that, the low level of penetration has been fairly linked to the absence of appropriate insurance products tailored to the local need and demand although there exist other structural hindrances and factors such as the perceived high cost of insurance compared to limited services, the perception that insurers do not pay claims, low level of disposable income, inaccessibility of the service and pitiable promotion, price based completion, gaps in regulatory intervention and organized awareness creation efforts, among others.

Accordingly, the proposition is that the insurance industry needs to develop and introduce new and customized insurance products that can suit the existing realities and arouse insurance demand.

The Cover
It is said that from luxury collection hotels to modest ones, each hospitality service provider has their own distinctive insurance needs and wants. On the other hand, the nature of the tourism business also exposes operators to many identical economic and reputational risks.

Although the scope of products vary, cover may include asset protection, which means all types of construction, from bricks-and-mortar buildings to thatched roofs and canvas tents, cover for loss of profits, and cover for legal liability arising from the death of, or injury to, a guest, or damage to their property, as well as subsequent financial claims with many policy extensions that may range up to exposures relating to conferences and events – such as music concerts, exhibitions, major sporting events, races and tournaments. In fact, the cover could also be extending to cyber liability, directors and officers, liability, business interruption and stock deterioration.

Insurers, in this regard, should dare to provide cover for properties constructed using non–standard materials and thatch to address the unique needs of the sector, apart from the standard exclusions.

Enough cake for all
Actors in the industry should believe that there are many opportunities for all insurance players especially the local ones to grow if they come up with demand based new insurance products, including hospitality and tourism insurance cover. For visionary companies, the current low insurance penetration can be taken as an opportunity to take advantage of.

This is a good time for local companies looking to boost their premium income and widen their base as service based competition will drive innovation. The insurance industry should create linkages with the hotel and tourism industry so as to get valuable insights into the risks and challenges the industry faces. It is believed that overhauling the product strategy of the industry and introducing demand driven insurance coverage will be a game changer for insurance in general.

6th Year • July 16 – Aug. 15 2018 • No. 64

Fikru Tsegaye Wordofa

Fikru Tsegaye holds MBA in Marketing and MA in Human Resource and Organizational Dev’t. He is currently working at Ethiopian Insurance Corporation as Marketing and Strategic Management Team Leader. He can be reached at

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