Hospitality businesses don't need major events to face significant financial disruption. Sometimes, the trigger is far less dramatic, such as a property issue that limits booking capacity.
In 2025, 1 in 11 hospitality businesses in Australia shut down, the highest rate on record, while missed invoice payments increased by 47%.1 In many cases, the greatest financial threat is not the damage itself, but the downtime and loss of trading capacity that follow
Who is most exposed in hospitality?
While disruption can affect any hospitality business, some are more vulnerable than others.
- Restaurants, bars and cafes often operate with fixed seating and high daily turnover, making them particularly sensitive to even small disruptions.
- Businesses located in shared buildings or strata environments face added risk, where issues originating from neighbouring tenants can directly affect operations.
- Venues that rely heavily on customer experience and space availability are also exposed, as disruption can affect both revenue and reputation.
Case study: Business interruption following water damage
Incident
Over several months, a hospitality venue dealt with an ongoing water leak from the ceiling and subfloor. This affected key customer-facing areas, including the bar, entrance, main dining area and private seating spaces.
After an investigation involving multiple experts and thermal testing and analysis, the source was traced to a faulty pipe in the business above.
Business impact
Seating capacity was reduced by around 50% for an extended period. What was expected to be a short disruption extended beyond the initial projection, creating ongoing operational impact.
This led to continued impact on revenue and cash flow, turning a property issue into a prolonged business interruption.
What made the claim complex?
Business interruption losses were initially underestimated, with several stakeholders involved, including the insurer, landlord, loss adjuster and the third-party tenant responsible for the damage.
Limited cooperation from the third party slowed progress. Specialist input was required for damage assessment and remediation, adding further complexity.
How Gallagher supported the client
Gallagher took a structured and coordinated approach. Our experts reviewed the initial business interruption assessment and engaged independent Claims Preparation Services to quantify the losses accurately. The team also worked closely with the insurer and loss adjuster to ensure the claim progressed effectively.
Throughout the process, we provided clear communication and guidance, helping the client navigate a stressful and uncertain situation. Our focus remained on maximising recovery across relevant policy sections while supporting third-party recovery efforts.
Outcome
The outcome delivered meaningful financial support for the business.
- Business Interruption: $389,079
- Contents: $32,116
- Stock: $16,222
- Additional Costs of Working: $16,890
- Claims Preparation Fees: $47,000
TOTAL CLAIM: $501,307
The recovery helped the business to stabilise and continue trading despite the prolonged disruption.
Key takeaways for hospitality SMEs
The case highlights how quickly a minor issue can develop into a much larger business challenge.
Key takeaways include:
- The financial impact of a disruption often extends well beyond repair and rectification costs.
- Business interruption losses are often greater than expected without an accurate assessment.
- Risks from neighbouring tenants and shared buildings should be carefully considered.
- Claims may involve multiple stakeholders and require additional coordination.
Ask yourself:
- Do you have adequate business interruption cover and limits in place?
- Would you be able to quantify your losses in the event of a claim accurately?
- Do you have access to expert support to manage the claims process effectively?
The role of insurance and claims expertise
Business interruption insurance helps businesses manage the financial effects of unexpected disruptions by covering loss of income and certain ongoing costs during the period operations return to normal.
However, the effectiveness of that protection depends on how well the policy is structured. This includes considering exposures such as third-party disruption and other causes of interruption beyond direct property damage.
Specialist claims support can help businesses quantify losses accurately and achieve better recovery outcomes.
Speak to a Gallagher expert
Hospitality businesses invest heavily in their people, customer experience, reputation and physical assets. However, incidents such as property damage, customer injuries, food-related claims and employee accidents can affect day-to-day operations and create financial and operational challenges.
Effective risk management and claims support can help businesses respond with confidence, maintain service standards and minimise the impact of unexpected events. We work with hospitality businesses to assess exposures, manage claims and strengthen resilience, allowing them to stay focused on delivering exceptional customer experiences.
