Hundreds of restaurants at risk of closure as insurers exit hospitality sector

The new year could see the closures of hundreds of restaurants, cafes and coffee shops across the country as four of the companies offering insurance to the sector have announced their intention to withdraw from the market.

The dramatic contraction in the number of companies willing to offer quotes to small businesses could see the cost of some insurance premiums increase by almost 200 per cent and in an industry with notoriously thin margins, increases of that magnitude could lead to many businesses shutting, it has been warned.

Responding to the development, Minister for Finance Paschal Donohoe said that the Government will not be making additional funding available to the sector mitigate this.

Referencing the announcement on Wednesday by Minister for Children Katherine Zappone of a one-off payment to registered childcare providers of €1,500 to deal with rising insurance costs, Mr Donohoe told RTÉ radio’s Morning Ireland there is no equivalent payment available to those who work in the hospitality sector.

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The increased support to childcare providers was made through the Department’s Payment Support Programme (PSP), which allows for once-off payments, nominally to support providers during the time needed to complete administrative work associated with applying for financial programmes run by the Government.

Mr Donohoe said that there is a fundamental difference between the provision of childcare and other parts of the economy in which the Government cannot intervene.

The chief executive of the Restaurant Association of Ireland Adrian Cummins told The Irish Times he had received correspondence on Wednesday from the association's broker Dolmen Insurance warning that "a number of insurers have exited the Hospitality/Leisure market and may not be offering 2020 renewals."

The letter said that companies commonly used by businesses in the hospitality sector that had announced their intention to curtail their business in the Republic were AIG, Axis, Contessa and Surestone.

“The margins are very tight in this business and while a price increase from €700 to €2,000 might seem small when compared with larger enterprises, as a percentage of a cafe’s revenue it is very high and it comes on top of increases in many other areas of the business,” Mr Cummins said.

“Some will simply not be able to cope with the increases,” he warned.

He said it was hard to see why so many companies had decided to exit the market almost overnight and he called on the Competition and Consumer Protection Commission’s monopolies division to launch an investigation to try and establish exactly what was going on in the sector.

High claims

“I am hearing that insurance companies are saying that the claims are too high but if they are so high how come insurance companies are making the profits they are making?” asked Mr Cummins.

He pointed out that cafes were not a high claim area as the public did not typically spend long on any premises and suggested that the move would also impact on pubs, hotels and other enterprises operating in the hospitality space.

He suggested that if insurance premiums were allowed to continue their upward trajectory “there will be very few businesses left.”

Mr Cummins drew comparisons with the child care sector which has seen crèches similarly hit by a contraction in the market.

"The Minister for Children Katherine Zapone was very quickly able to announce a once off payment of an average of €1,500 to affected crèches but what about all the other businesses? It seems to me that the insurance industry is running rings around the Government."

A spokeswoman for the Minister of State Michael D’Arcy said he was aware of reports about the reduced availability of insurance to the hospitality sector but said the sector itself “has not approached Minister D’Arcy or the Department directly on this immediate issue around capacity in the market”.

She said that as a result the Mr D’Arcy was unable to comment “with regard to particular insurers withdrawing from the market”.

The spokeswoman pointed out that neither the the Minister for Finance Paschal Donohoe or Mr D’Arcy were in a position to direct insurance companies, through insurance legislation or otherwise, as to the pricing level that they should apply to particular categories of organisation, “nor is he in a position to direct them to provide cover to particular companies or sectors. This includes the hospitality sector,” she added.