7 Critical Risks Facing the Hospitality Industry (2023)

A storm is brewing for the construction industry as a skilled-labor shortage lengthens job times and contributes to higher rates of injury. But there are risk tools that can help contractors get ahead.

7 Critical Risks Facing the Hospitality Industry (1)

A lack of labor in any industry has many implications, from decreases in productivity to increases in workers’ compensation claims. For the construction industry, a labor shortage can contribute to delays in project completion, issues with quality control, increased builder’s risk costs and more.

“Labor is a significant issue in today’s industry,” said David DeSilva, Head of Construction for The Hartford’s Middle & Large Commercial. “Skilled labor shortages hinder the ability of construction companies to uphold the timeliness or contractual requirements with the owner or higher-tiered contractors.”

An Associated Builders and Contractors analysis revealed the construction industry will need more than half a million workers above its current pace of hiring in order to meet demand. That would mean, the report estimated, an additional 650,000 workers.

“When you think about shortages and some of the issues they can cause, there are job delays, reengineering of construction sequences, a shift in the business model. They may be going from self-performed to more subcontracted work,” DeSilva said.

“As an example, if a trade doesn’t have enough workers and laborers to complete the job, they may subcontract part of that or all of that work out to someone else.” And even this practice has its own risk implications to contend with.

It’s no doubt, either, that the pandemic has increased the need for laborers. According to DeSilva, however, this was a growing concern pre-pandemic as well: “More workers were leaving the field than entering it, and firms were beginning to address the issues pre-pandemic.”

Now with the Great Resignation in the mix, an aging workforce and low interest from younger professionals, the construction industry needs to act in order to attract and retain skilled talent and mitigate against risk.

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Here’s a deeper dive into what’s going on in construction, the insurance implications of a labor shortage and how construction professionals can start to course-correct and bring on the skilled talent they need to thrive.

Understanding Your Labor Shortage Exposures

As noted, a lack of labor can lead to several risk exposures. For the industry, specifically, there are a few key things that construction risk professionals should know in order to get a grip on mitigating risk.

A key component of construction is job bidding. Contractors meet with potential clients to give them a proposal for completing their project. Subcontractors use this bidding process to showcase their skills to the contractors to be considered for the job.

But with less labor, contractors aren’t able to take on as many jobs at the same time.

“You’re seeing firms be more selective in their bids and more selective in the work they’re taking on,” DeSilva noted. This means bidding has become more competitive in nature, thus driving up project costs for higher-tiered contractors or the owner, placing a strain financially on the project.

Less workers can also lead to workmanship issues.

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“When you think about less experienced workers coming onto site and completing these jobs, there is a potential for downstream implications on the quality of work,” said DeSilva. Added to that, he said, newer workers could lead to timeliness issues as they take their time to become more familiar with the requirements of the job.

Also, less labor impacts timeliness in that contractors must adhere to safe shifts for workers, and fewer employees means less shifts, which could lead to longer project completion times. Some construction jobs last months — and even years — depending on the type of program and project it is.

Insurance Strains to Note

A skilled-labor shortage has the potential to impact all lines of insurance, no matter the size or scale of the project. DeSilva called attention to a handful that should be at the top of the consideration list for construction risk professionals to review.

Number one is workers’ compensation.

“It’s no secret that older workers take longer to recover from injury, which clearly impacts claim dollars and claim payouts,” he said. “Data has shown that less experienced workers, at the opposite end of the spectrum, tend to get injured more often, and with less workers in the field, there are higher demands on the workers that are left.”

It’s the perfect storm for potential mistakes or oversights, which can lead to more injuries.

It also has workmanship implications, as fewer workers under more pressure could possibly miss key performance and quality checks. That can lead to builder’s risk, yet another insurance line that feels the strain of the lack of labor in construction.

“Then there’s the overall economic inflation, driving loss dollars, medical costs, material costs, safety equipment — everything is increasing at record highs,” DeSilva added.

He said depending on the insurance program structure, these loss dollars could be directly paid by the contractor and indirectly through the insurer.

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Safety as a Way to Bring in Skilled Labor

Safety and training have to be at the forefront of recruitment and retention of workers.

Not only will a strong safety training program bring down the number of injuries and help prevent risk, but it will also create a culture of safety among laborers. That in turn shows these workers their employer cares about their wellbeing and gives them a sense of security in their job.

“Risk managers and safety directors are really beefing up their training and safety programs in an effort to mitigate loss and retain the talent that they already have,” said DeSilva. A key way they’re doing this is by looking to technology for safety solutions.

“When you think about the implementation of onsite imagery, or water sensors, wearables on workers, or telematics in vehicles,” said DeSilva, “these technological devices are going to help drive down loss costs and ultimately benefit both the firms and the workers.”

Partnering with a Team Skilled in Construction’s Demands

Once construction firms understand the labor shortage and its impacts, it can be hard to determine what to do next. Implementing a quality safety program is a good start, but knowing exactly what that entails will require an insurance partner that can guide contractors and construction risk professionals towards the best solutions for them.

At The Hartford, the risk engineering consultants are trained to know what to do to help.

“Our risk engineering team consultants have a wealth of knowledge and experience in the industry, as many of them have come from the contractor side,” said DeSilva.

“They have the training from the contractor seat and have the ability to review safety programs and identify hazards and offer recommendations for improvement. When you’re working through a labor shortage every day, it’s easy to overlook things. A new perspective from people who understand your industry goes a long way.”

The Hartford also has an Accredited Industrial Hygiene Lab dedicated to giving firms the opportunity to monitor and improve occupational health, further reducing workers’ comp claims and bolstering safety efforts to keep workers safe.

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When a claim does roll in, claims professionals at The Hartford are ready to act: “We have medical clinicians who help manage claims, and data experts that are solely dedicated to claims. Our claims team is able to identify trends, highlight exposures and save on medical costs,” DeSilva said.

“The labor shortage is likely going to continue to be a challenge for the foreseeable future. How contractors handle the shortage will be a major factor in their performance and the reputation of their firm,” he added.

“The industry is continually evolving, and organizations that frequently update their safety and training programs are going to minimize and mitigate their exposure to loss.”

To learn more, visit: https://www.thehartford.com/business-insurance/construction.

The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of August 2022.

The Hartford Financial Services Group, Inc., (NYSE: HIG) operates through its subsidiaries, including the underwriting company Hartford Fire insurance Company, under the brand name, The Hartford®, and is headquartered in Hartford, CT. For additional details, please read The Hartford’s legal notice at www.thehartford.com.

7 Critical Risks Facing the Hospitality Industry (3)

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with The Hartford. The editorial staff of Risk & Insurance had no role in its preparation.

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What are the risks facing the hospitality industry today? ›

The hospitality sector is well-known for demanding long, hard hours of its workers. At times its possible that staff may be become overwhelmed by the workload, stress or the abuse they face in their role. Supporting staff with their mental health as well as their physic health is critically important.

What is risk as applied to hospitality and tourism industry? ›

Another risk in the hospitality and tourism industry are environment-related crises. Because industry provided products and services are located at a specific destination, natural disasters such as earthquakes, hurricanes, or other extreme weather disasters can occur.

What is risk assessment in the hospitality industry? ›

You must manage the health and safety risks in your workplace. To do this you need to think about what, in your business, might cause harm to people and decide whether you are doing enough to prevent that harm. This is known as a risk assessment.

What is the main risk associated with the hotel construction? ›

Obsolescence/exit risk

This risk impacts the ability of the owner of the hotel property to exit the investment or extend its economic life. This risk involves the potential decrease in a property's value as at the envisaged exit period. It is the uncertainty of the future value of the hotel asset.

What are the 5 common risk in hospitality industry? ›

You will not be surprised to know that slips, trips and falls are among the most common causes of injury in this industry, particularly among chefs and waiting staff. Food spillages, wet floors and trip hazards all contribute to this. Blocked walkways, and waiting staff rushing to serve tables can all act as hazards.

What are the 4 risks facing the hotel industry? ›

Top 5 risks and security challenges for hotels
  • Identity theft leading to credit card fraud. ...
  • Silent invasions – Cyber-crime attacks are powerful tactics from next generation criminals. ...
  • Longer or no security audit cycles. ...
  • Physical crime will remain an issue for hotels in 2015.
22 Jan 2015

What are the major risks which can affect tourism? ›

Examples include:
  • Natural disasters – these include earthquakes, volcanic eruptions, tsunamis and floods, hurricanes and other extreme weather disasters. ...
  • Political issues – political unrest is common in developing countries, and they often have an impact on tourism.
8 Jun 2020

Why is it important to identify risk in the hospitality and tourism industry? ›

Effective risk management enables you to proactively prepare for potential losses, provide a safe environment for your employees and patrons, while securing better pricing on your insurance.

What is risk management hospitality? ›

Hotel risk management is the process of identifying, assessing and controlling risks. This includes operational risks, safety, financial and technological risks.

What are the risk in restaurant? ›

The Top 13 Risks to Restaurant Operations
  • Slips and falls.
  • Broken doors and locks.
  • Dirty restrooms.
  • Cooking fires.
  • Identity theft.
  • Cuts and burns.
  • Unfocused employees.
  • Ugly floors.

How can we reduce the risk factors in the hospitality industry? ›

Ways to minimise risks include:
  • Developing and implementing safe systems of work;
  • Making sure workers follow these safe ways of working and use appropriate personal protective equipment;

What are the five 5 categories of risk construction? ›

Types of Construction Risks

Safety hazards that lead to worker accidents and injuries. Managing change orders. Incomplete drawings and poorly defined scope. Unknown site conditions.

What are the 4 types of construction risk? ›

4 Common Risk Factors on Construction Projects
  • Labor Shortages & Productivity Issues. Not having enough workers available to complete a project or hit productivity goals is a huge risk when taking on new projects. ...
  • Health & Safety Hazards. ...
  • Subcontractor Default. ...
  • Change Orders.
13 Apr 2022

What are the top 5 health risks in construction? ›

Top ten health and safety risks in construction
  • Working at Height. The construction of buildings – or indeed, demolition works – frequently requires tradesmen to work at height. ...
  • Moving Objects. ...
  • Slips, Trips, & Falls. ...
  • Noise. ...
  • Hand Arm Vibration Syndrome. ...
  • Material & Manual Handling. ...
  • Collapse. ...
  • Asbestos.
21 Oct 2014

What are the common hazards and risks in tourism and hospitality workplace? ›

Infectious diseases: Waste disposal can expose hotel housekeeping staff to pathogens, broken glass, and other body waste. Stress: Excessive workload and exposure to other hazards can cause occupational stress. Muscle Injuries: Repetitive movements of vacuuming, scrubbing, dusting, etc.

What are common types of problems in the hospitality industry cite at least 5 items and discuss each item briefly? ›

Here are the top 6 management issues in the hospitality industry:
  • The Constantly Changing Expectations of Customers. ...
  • Continued Technological Changes and regular innovation. ...
  • Political and Security challenges. ...
  • Skilled labour shortage, staff turnover and Irregular working hours. ...
  • Booking and Revenue challenges.

What are the 5 common hazards in front office and food and beverage areas? ›

The most common hazards in the hospitality industry are:
  • lifting and pushing - eg. handling heavy or awkward shaped objects.
  • slips, trips, falls - eg. slipping on a wet floor or tripping on uneven surfaces.
  • hot surfaces and substances - eg. ...
  • cutting equipment - eg. ...
  • occupational violence - eg.

What is the biggest challenge facing the hospitality industry? ›

Five Biggest Challenges Facing The Hospitality Industry in 2022
  • Staff Shortages and Retention. ...
  • Cost of Living Crisis. ...
  • Increase in Hospitality Tech. ...
  • Environmental considerations. ...
  • Meeting demand.

What are the three types of threats that may be present in any hotel? ›

Vandalism, theft and loitering are just some of the threats that hotels have to address. And it's not just from guests and outside parties. Hotel staff who have a thorough understanding of your vulnerabilities can take advantage of your business for their benefit.

What are the 7 components of the tourism and hospitality industry? ›

  • Accommodations and.
  • Lodging.
  • Recreation and.
  • Entertainment.
  • Travel Services.
  • Food and Beverage Services.
  • Conventions and Event.
  • Management.

What are the main challenges of the hospitality industry and food sectors? ›

The main challenges for the hospitality industry are the lack of predictability and the magnitude of such events – and how fast the industry can react and adapt. Hybrid operations might be one of the hospitality industry's possible responses to increased risks.

What is example of risk? ›

Examples of uncertainty-based risks include: damage by fire, flood or other natural disasters. unexpected financial loss due to an economic downturn, or bankruptcy of other businesses that owe you money. loss of important suppliers or customers.

What is risk in tourism management? ›

In simple terms, the tourism risk management process is concerned with identifying and analysing the risks ('the chance of something happening that will have an impact upon objectives') to a destination or organisation and deciding what can and should be done about them.

What are sources of risk? ›

Sources of Risks and Their Determination
  • Call Risk.
  • Convertible Risk.
  • Default Risk.
  • Interest-Rate Risk.
  • Management Risk.
  • Marketability (Liquidity) Risk.
  • Political Risk.
  • Purchasing-Power Risk.

How many sources of risk are there in tourism? ›

According to the World Tourism Organization, there are four main sources of risks in tourism (UNWTO, 2015) [17]: (1)Tourism sector and the related commercial sources (disrespect of contracts, frauds, insufficient level of hygiene and sanitary protection, fire, earthquake); (2)Human and institutional environment outside ...

What do mean by risk? ›

Definition: Risk implies future uncertainty about deviation from expected earnings or expected outcome. Risk measures the uncertainty that an investor is willing to take to realize a gain from an investment. Description: Risks are of different types and originate from different situations.

Why is risk management important? ›

Risk management is an important process because it empowers a business with the necessary tools so that it can adequately identify and deal with potential risks. Once a risk has been identified, it is then easy to mitigate it.

What are the challenges faced by hotel industry during Covid 19? ›

Some projects which were at initial stage were called off from the fear of losses. The industry was given no relief by government even in stimulus package. Even after re-opening of hotels the occupancy rate stayed very low. The revenue per available room fell drastically and so did overall revenue of the industry.

Why risk is important in hospitality industry? ›

The risk of injury on premises is very high in the hospitality industry. Due to the high number of guests that go through your doors each day, it is essential to minimize this exposure by taking certain precautions.

What is the biggest challenge facing the hospitality industry? ›

Five Biggest Challenges Facing The Hospitality Industry in 2022
  • Staff Shortages and Retention. ...
  • Cost of Living Crisis. ...
  • Increase in Hospitality Tech. ...
  • Environmental considerations. ...
  • Meeting demand.

What is the biggest environmental issue facing the hospitality industry as to this moment? ›

Pollution -- This is an issue anytime there are high outputs of oil, natural gas, gasoline, or coal. Whether these are used for energy or they are used for transportation, the amount of pollution caused by organizations in hospitality can be a big problem.

What is operational issues in hospitality industry? ›

The unique nature of the business can lead to operational issues. First, finding and keeping employees can be a challenge. Next, the hotel business faces increasing operational costs. Lastly, the hotel business has to be prepared for natural disasters, as it can be one of the biggest operational issues.

How has the pandemic affected the hospitality industry? ›

Since February 2020, US hotels have lost in excess of $46 billion, and 4.8 million hospitality and leisure jobs have been lost. Lodging operations such as the AHLA in the USA projected occupancy rates below 20% in the last few months of 2020 (AHLA, 2020).

How can we solve hotel problems? ›

7 Tips for Successfully Resolving Your Hotel's Guest Issues
  1. Act Quickly. When a guest comes to one of your team members with a complaint, don't hesitate. ...
  2. Show Compassion to Guests. ...
  3. Say “I'm Sorry” ...
  4. Avoid Arguments. ...
  5. Offer Room Upgrades & Free Hotel Perks. ...
  6. Follow Up with Guests. ...
  7. Ask Guests to Complete NPS Survey.
18 Jun 2021

What are the major risks which can affect tourism? ›

Examples include:
  • Natural disasters – these include earthquakes, volcanic eruptions, tsunamis and floods, hurricanes and other extreme weather disasters. ...
  • Political issues – political unrest is common in developing countries, and they often have an impact on tourism.
8 Jun 2020

How can we reduce the risk factors in the hospitality industry? ›

Ways to minimise risks include:
  • Developing and implementing safe systems of work;
  • Making sure workers follow these safe ways of working and use appropriate personal protective equipment;

What are sources of risk? ›

Sources of Risks and Their Determination
  • Call Risk.
  • Convertible Risk.
  • Default Risk.
  • Interest-Rate Risk.
  • Management Risk.
  • Marketability (Liquidity) Risk.
  • Political Risk.
  • Purchasing-Power Risk.


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