Faculty of Tourism and Hotels, Alexandria University, Egypt
The whole world is facing a substantial amount of disasters which brings severe damages throughout the world. These disasters severely affect the tourism industry. Hence, recovering damages in tourism business becomes a major issue for the continuation and development of the business. In this context, insurance plays a vital role to restore the business while reducing the financial consequences of the disaster. The issue of availability of insurance in the tourism industry is addressed for the tourism companies across Egypt. It has been particularly problematic especially in the current circumstances where Egypt faces different attacks that threaten the tourism businesses. Therefore, the issue of availability of insurance in the tourism industry is addressed for the tourism companies across Egypt. It has been particularly problematic especially in the current circumstances where Egypt faces different attacks that threaten the tourism businesses. The main challenge appears to be in relation to securing commercial general liability coverage and/or obtaining such coverage on a cost effective basis.
Therefore, the objective of this study is to investigate the role of insurance as a provision to recover the disastrous destruction of the tourism business community in Egypt through exploring the travel agencies’ attitudes and perceptions towards insurance, as well as exploring the behaviour of insurance companies towards tourism activities and providing recommendations to enhance the insurance penetration to the tourism business to provide a safer environment for investors. To achieve this, the survey method was employed and data were collected by using semi structured interviews. Experts from the tourism tour operators and travel agencies were interviewed to explore the role of insurance to support their business.
By analyzing data, it can be concluded that the main purposes of obtaining insurance are quick recovery of business and to fulfil the borrowing requirements. Some issues of the current practice are identified as less awareness, and dishonesty of the insured which leads to less identification of the insurance as a risk management strategy within the tourism companies. Recommendations are developed to increase the awareness, and encourage the government participation to increase the insurance penetration to the tourism industry.
Key Words:Insurance; Recovery planning; insurance legislation; types of travel insurance.
Terrorism and political instability have a severe impact on tourism business activity. The increased frequency of severe terrorist attacks as well as the unsafe and unstable environment facing the Arab countries, and hence Egypt caused huge amounts of damage to the tourism industry in Egypt and presented a very challenging situation to maintain this business viable. Tourism business has suffered significant losses as a result, particularly due to the subsequent decrease in visitor numbers. Tourism in Egypt isn’t experiencing the same demand it has previously enjoyed, as an example the economic crisis in 2008 had a negative effect on tourist arrivals to Egypt. The percentage change of tourist arrivals had decreased with -2.3% in 2009 (World Tourism Organization, 2011). Similarly, the 25th January revolution in 2011 caused an unprecedented and sustained drop in tourist arrivals in Egypt. The percentage change of tourist arrivals had decreased with -33.1% in 2011 (World Tourism Organization, 2012).
Since the disasters are non-routine events that require non-routine response, any business cannot rely on normal procedures to implement appropriate responses to dealing with disasters (Atmanand, 2003). Davies and Walters (1998) revealed that reduce revenues, customer loss, and reduce market shares may be the minimum effect of a small business interruption but major business interruption may threaten a company’s survival. However, the intention is to reduce the possibility for damage, as well as to minimize the negative impact, and to prevent the risk.
Alexander (1992) highlighted that the plans must be developed and implemented to assure that all critical business functions continue successfully in the incidence of disasters. Moe, et al. (2007) explained that post Disaster Recovery Planning (DRP) process involves decisions and actions taken after a disaster to reinstate or improve the pre-disaster business situation while facilitating to obtain necessary adjustments to reduce disaster risk. Disaster recovery is essential for an organization to remain viable in the face of disasters because many companies go bankrupt or close after a disaster (Hardly, et al. 2009). Thus, Paradine (1995) argued that insurance protects organizations from the financial consequences of loss which avoids the potential business bankruptcy in the future.
Paradine (1995) indicated about two ways to handle the financial risk of disaster: either by deciding to bear the cost itself- that is, retain the risk or transfer the risk to the insurer. He further stated that, DRP and planning for insurance protection are linked because the obvious solution for organization finance needs during an interruption of business is to transfer the risk of loss through the insurance. Atmanand (2003) reported that insurance represents an important requirement for many economic activities. Simultaneously, Paradine (1995) specified that one of the major ways of financing the disaster risk is through an insurance cover by ensuring that funds are available after a disaster, to enable the business to continue. Furthermore, he argued that insurance on its own protects organizations from the financial consequences of losses; nevertheless it does nothing to prevent it. In addition, Paradine (1995) indicates insurance has a major role in determining how to well survive in the interruption of normal business.
It is obvious it is important for all business owners to make sure that they have adequate insurance coverage in all aspects of their business particularly tourism businesses, as they face challenging market conditions and specialized risks. Accordingly, insurance has relevant importance in the progress of the business of tourism in particular.
Nowadays, the need for insurance is greater, especially voluntary insurance which is necessary to cover the risks which are not included in the insurance policies imposed by the regulative laws. It is critical when there is a major downturn to investigate whether businesses are underinsured or not insured at all. Hence, an important question arises, do the travel agencies in Egypt have a level of insurance coverage, and how does insurance assist in travel functions practically if it exists. Thus, this paper intends to identify the role of insurance in post disaster recovery planning in the tourism business community in Egypt through exploring the travel agencies’ attitudes and perceptions towards insurance, as well as exploring the behaviour of insurance companies towards tourism activities, and providing recommendations to enhance the insurance penetration to the tourism business to provide a safer environment for investors. The structure of this paper contains risk management in tourism, and then insurance in post disaster recovery planning in tourism business community. Research methodology and the findings of the research will then be addressed. Finally, the conclusion will be presented.
2 RISK MANAGEMENT IN TOURISM
Risk management is a rational approach for dealing with the risk. Risk management includes determination of the level of exposure that is acceptable to the tourism business and its clients, identification of the hazards to the business and its clients, evaluation of the hazards, selection of appropriate strategies, implementation of these strategies and appropriate response to emergency situations (Taleski & Tashkov, 2011; Kaushalya et al., 2014).
Risk is defined as the occurrence possibility of a certain situation that might influence goals’ fulfilment. All risks have potential to go out of control and create crisis, but risks will not escalate if they are treated systematically (Taleski & Tashkov, 2011). While Eden & Matthews (1997) defined disaster as any incident which threatens and damages human, buildings, equipments and systems. Chow & Ha (2009) stated that disaster can be identified as any event that can cause a significant disruption in information services capabilities for a period of time and affect the operation of the organization.
According to Popesku (2011) as cited in (Taleski & Tashkov, 2011), risks in tourism may be divided in four main groups: Human and institutional environment (ex. Terrorism , violence, ..), Tourism and complementary businesses (ex. Transportation accidents, lack of protection against earthquakes etc.), Passengers as individuals (ex. Visiting dangerous places, loss of personnel belongings, etc.), Physical risks and risks from the environment (ex. tourists who: not aware with the natural characteristics of the destination, do not take appropriate medical measures, etc.).
Common ways of dealing with risk include four available options such as acceptance of risk, risk reduction, risk transfer and avoidance of risk. Acceptance of risk is in cases where the frequency and size of risk is small and only if its consequences can be managed without any negative impact on the destination or the perception of visitors (Taleski & Tashkov, 2011). Risk reduction could be managed by modifying the probability of risks or reducing its effects (for example, reducing the consequences of fire in the hotel with evacuation plans, training employees, etc.) and/or increase the adaptability (for example, capacity for submission of losses). Risk transfer is used when there are significant consequences (such as consumer injury, damage to property), and the risk is transferred in whole or in part, on the other (such as insurance companies). Avoidance of risk will occur if the frequency and size of a large risk is to an extent that an operation is suspended or withdrawn from the market (Taleski, & Tashkov, 2011). Thus, the purpose of disaster recovery plan is to minimize financial losses, maintain the continuity of operation, ensure the integrity of data and restore normal operation in a timely and cost effective manner (Chow, 2000; Chow & Ha, 2009). Chow & Ha, (2009) further explained effective management and control of disaster risk will provide long-term cost reduction, minimize disruption in the event of a loss and enable the business to operate more effectively.
Good insurance brokers and consultants can provide valuable assistance on risk management and insurance matters.
3 INSURANCE IN POST DISASTER RECOVERY PLANNING IN TOURISM BUSINESS
Insurance is an essential aspect to manage the residual risk which cannot be eliminated further (Suncorp Group, 2007). There are different types of insurance for different types of risks (Fabozzi et al., 2009). The primary function of an insurance company is to compensate policyholders if a prespecified adverse event occurs in exchange for premiums paid by the policyholder (Saunders & Cornett, 2007).
Insurance is an integral part of the risk management process. In deciding which policies and what level of insurance to take out, a business needs to develop an insurance plan which includes determining which assets and hazards to the business will be insured. The insurance plan will also determine how much of the assets and the hazards will be covered through an insurance policy and how much will be self-insured (covered by the business itself), as well as the conditions required. This subsequently requires deciding on the critical areas to cover to remain competitive with other tourism businesses. As well as deciding on how much the business can afford to pay for insurance without impacting on profit target (Krasniqi, 2010; Taleski & Tashkov, 2011; and Kaushalya, et al. 2014). It is important to note that insurance will not make activities safer and will neither reduce the possibility of, nor stop incidents from happening (Taleski & Tashkov, 2011).
The decisions regarding the purchase of insurance should be based on some internal factors such as tolerance for risk which includes how much risk is in the business and the business owners willing and capable to bear. Another critical decision is how much insurance to purchase. The second factor is business longevity and business structure and if the business structured in a way that protects the owners and the assets. The third factor is the assets that have to be protected and if there are assets that will be costly or difficult to replace. The final factor is employees, shareholders/owners/partners (Taleski & Tashkov, 2011).
The decision of purchasing insurance in the tourism industry is also based on some external factors such as the legal and regulatory requirements, such as industry and business requirements (business that impose insurance requirements for example, the bank, tour operator or similar). Some types of insurance cover are required by law, but others are voluntary. For example in Egypt , The required documents for establishing a tourism company according to the implementing regulations provisions for the law number 125 for 2008 includes the receipt of paying the insurance (insurance guarantee) to the ministry of tourism according to its category (A, B, or C) (Ministry of Tourism, 2015). The overall factors affecting insurance purchase decision is shown in figure 1.