Article, Post Magazine – August 2008
Insurance / Property
Disasters such as the fire that destroyed the Grand Pier at Weston-super-Mare bring the issue of calculating business interruption losses into sharp focus, but the sums are never straightforward. James Stanbury explains.
Around the coastline of the UK stand 55 piers, a powerful testament to the achievements of Victorian engineers and entrepreneurs. But over the last few years, these piers have become no stranger to disaster – with those at Hunstanton, Brighton, Southend and, most recently, the Grand Pier at Weston-Super-Mare all being ravaged by fires. Not only was the Grand Pier a deserved local and national treasure but a business. So what are the implications for such an attraction when disaster strikes? Indeed, when evaluating the losses that arise after such events, what issues do they attract?
In evaluating business interruption losses, it is usually the factors that determine the revenue streams that generate the most discussion. These can be internal to the business or dependent on external factors related to the national or local economy. When a business operates as a tourist attraction, it is these external factors that may count for more in the race for visitors; what an attraction does not want to suffer is a freefall in its footfall.
Although it is necessary to analyse the historic revenue levels – on a pier these will arise from multiple sources, such as rides, kiosks, arcades and food outlets – these need to be set in their economic context. And in 2008, this context may just be favourable – not only for the Grand Pier but for UK tourist attractions in general.
Staying at home
The socio-economic climate coupled with the well-documented biting effects of the credit crunch are said to be persuading holidaymakers to stay in the UK. For example, Lastminute has recorded nearly a 20% increase in British holiday bookings during 2008. Such trends may also be accelerated this year by the weakness of sterling against the euro.
Of course, in evaluating losses at any tourist site, seasonality factors will play a significant part. Fair weather, especially in the UK, is a friend to punters and owners alike. For some attractions, weather can be the key factor in determining its success or failure. Before the London Eye appeared on our skyline, a tethered balloon called Big Bob rose over Vauxhall for city viewing. Incidents happened and projection of lost revenue was measured against a detailed analysis of the weather – wind speed, rainfall and temperature – to determine whether the public were likely to visit.
In addition, in reviewing revenue trends, it will be necessary to consider whether year-on-year comparisons would be fair; are the circumstances comparable? This is especially relevant to the Grand Pier, which underwent a £1m refurbishment early in 2008.
In evaluating any business loss, thought must also be given to possible savings. For a tourist attraction – and the Grand Pier is no exception – the key overheads that may be saved include salaries and wages, rates and utility costs. The continued provision of employment, especially in a local community where an attraction such as a pier may be a relatively significant employer, is not only an economic but a political question that has to be answered. In the case of the Grand Pier, its owners, Kerry and Michelle Michael, have publicly declared that existing contracts of employment will be honoured. Depending on the timeframe of the reinstatement programme, the central question will become whether such contracts will necessarily be renewed.
Damage to the Grand Pier also highlights the possibility of losses to local businesses due to loss of attraction – notwithstanding that this damage has resulted in the pier itself losing its attraction.
Such losses are not generally covered under UK BI policies unless there is a specific extension. Any ‘loss of attraction’ extension may restrict losses arising from damage by fire or peril to a named attraction or area of attraction. For example, think back to the IRA bombing of Manchester in 1996 and the ‘Arndale Centre effect’. It is unclear whether local businesses close to the Western-super-Mare pier have such coverage or, indeed, whether any losses would flow from them if they did. In fact, it has been reported that the Rock Shop near the Grand Pier has been doing a rather brisk trade in postcards of what the pier used to look like.
Complaints from local businesses can in fact be unfounded as footfall may not actually have diminished. Indeed, one has to consider the attraction of visitors in looking at the pier in its current state – there is sometimes as much ghoulish attraction in viewing a ‘disaster’ as its predecessor.
Incidents such as these always bring into sharp focus the indemnity period that is applicable to a loss. Where a building is listed – the Grand Pier is a Grade II listed building – this issue is exacerbated and may even threaten its long-term survival. Hopefully, all is not lost for the pier; its owners are ebullient and trying to save a pier they clearly cherish, endeavouring to mitigate any losses by reopening the pier quickly. In fact, by the Thursday following the fire, foreshore catering outlets and shops plus 80% of the walkway had been reopened.
It is said that insurers can be reluctant to underwrite piers – the fire history noted above does rather present an active claims history. But perhaps the national heritage they represent obligates insurers to relieve some of the pier pressure they experience during disasters.
As appeared in Post Magazine, August 2008.