InterContinental is saving insurance for a rainy day | Asian Business Review
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InterContinental is saving insurance for a rainy day

NUS Professor Charoenwong discusses the effectiveness and value of a Singaporean hotel’s rain insurance offer.

Singapore’s hospitality industry is no stranger to innovation, but the recent release of a rain coverage package by a leading hotel chain marks a unique venture into the realm of insurance. According to Assistant Professor Ben Charoenwong from the National University of Singapore (NUS), this offering challenges traditional insurance models, particularly in the hospitality sector, by intertwining risk management with customer satisfaction.

“It’s really a marketing component. If you’re in the hospitality sector, your sales are pretty cyclical. More people visit during peak season, whereas during non-peak, season there are fewer people. The hope here is with some marketing, if it rains, you would come to visit the place more often,” Charoenwong told Insurance Asia magazine in an exclusive interview.

“But it seems to be this exercise to financial life. Once a product is created, there will be initial variations — serving the business purpose as a marketing component. At first, it seems to be offered free to the customers, right? But nothing is really free. It’s baked into the price [...] But with this type of insurance, maybe consumers can take the chance and stay at the hotel thinking the worst-case scenario would rain,” Charoenwong said.

Take InterContinental Singapore, for example, a 5-star hotel located in Singapore's historic centre, which has teamed up with insurtech discovermarket to introduce the Rain Resist Bliss Package, a first-of-its-kind rain protection offering. 

Guests booking this package are eligible for a refund equivalent to their single-night room rate if it rains during their stay. If rainfall exceeds a cumulative two-hour duration during daylight hours, triggering a recorded rain event, hotel guests will automatically receive a rebate voucher within seven working days.

The package offered is exclusively available for suite room bookings starting at SG$850 a night. Guests opting for this package can avail themselves of additional benefits such as 24/7 butler service and access to the hotel’s club lounge.

Rain or shine

The primary allure of this rain coverage package lies in its marketing potential. With hospitality sales often fluctuating due to seasonal variations, the aim is to attract visitors during less appealing weather conditions by offering compensation for rainy days.

In January alone, Singapore saw a surge in travellers, totalling over 1.44 million, marking a 54.2% increase compared with the same period in the previous year. Despite this growth, visitors opted for shorter stays, as revealed by data from the Singapore Tourism Analytics Network collected until 31 January 2024.

Of the total influx, approximately 1.07 million were overnight visitors, showing a substantial rise of 43.6% from the previous year. However, the average length of stay experienced a notable decline of 20.1%, dwindling to just 3.45 days in January 2024 compared to the 4.32 days recorded for January the previous year.

Breaking down the visitor demographics, Indonesians constituted the largest group, with over 268,970 individuals arriving in Singapore in January 2024, followed closely by visitors from China at 211,190. Additional arrivals hailed from various countries such as Australia (124,140), India (82,100), South Korea (79,260), the USA (63,260), and the UK (60,950), amongst others.

In terms of age, the majority of visitors fell within the 25 to 34 age bracket, accounting for over 302,580 arrivals. Interestingly, more women (750,850) than men (685,460) crossed Singapore’s borders during the month.

Initially offered as a complimentary service, the cost of rain coverage is inevitably factored into the overall package, subtly shifting the risk burden from the customer to the hotel. This shift raises questions about actuarial considerations, especially concerning weather forecasting and data analysis, said Charoenwong.

Whilst forecasting accuracy for short-term weather predictions is relatively high, long-term forecasting remains challenging, particularly when booking vacations months in advance.

Singapore experienced notable weather patterns in 2023, with above-average rainfall contributing to the island’s seventh wettest year since 1980. The annual total rainfall averaged across islandwide stations was 2,866.1 mm, marking a 13.1% increase compared with the long-term average of 2,534.3 mm.

The Changi climate station recorded 2,411.2 mm of rain, exceeding its long-term average by 14.1%.

February stood out with an islandwide average rainfall of 342.0 mm, more than double the month’s long-term average of 132.1 mm. Similarly, at the Changi climate station, February’s rainfall was about three times the monthly long-term average. This ranked February as the fourth wettest February since 1980 for both islandwide and the climate station.

The exceptionally wet weather continued into March, with islandwide average rainfall surpassing the long-term monthly average by 52.7%. March was ranked as the fifth wettest March since 1980. However, amidst the generally wet conditions, Singapore experienced drier-than-normal months in April, May, August, and October. These months ranked amongst the top 10 driest for their respective months since 1980.

Is it worth it?

Focusing on the financial aspect, Charoenwong drew parallels with extended warranties. “In some sense from a financial perspective, it’s like an extended warranty [...] Research on this suggests that, on average, extended warranty is not worth it,” he said.

“Beyond the actuarial risks, what is the risk of rain in Singapore? But beyond that, there's a concern that the only people who will care about these products, you know, are if they're going to be adversely selected. In some sense, these are the people who were already likely to have travelled during the rainy season,” he added.

The study by Marieke Huysentruyt and Daniel Read shed light on consumer perceptions of extended warranties, revealing a disparity between perceived and actual value. Extended warranties, whilst popular, often come with a hefty price tag, leading researchers to investigate the underlying reasons for their widespread purchase.

Overall, consumers tend to greatly overestimate both the likelihood and cost of product breakdown, contributing to their willingness to purchase warranties. Contrary to economic reasoning alone, the decision to purchase warranties is heavily influenced by emotional factors. Consumers derive significant emotional benefits from the peace of mind associated with having a warranty, which strongly predicts their willingness to pay.

The study also highlighted the profitability of extended warranties for commercial electronics stores, with estimates suggesting that 40% to 80% of profits on electronics come from warranty sales. This profitability underscores the importance of warranties for the financial viability of these stores.

Furthermore, the study revealed a disparity in marketing strategies between warranty providers and consumer advocates. A Google search for "extended warranty" and "peace of mind" yielded significantly more hits promoting warranties, whilst searches related to probability were dominated by anti-warranty advice.

In terms of pricing, the study found that the actual price of warranties often exceeds their objective actuarial value by a significant margin. For example, the median subjective actuarial value for a three-year warranty was $27, whereas the actual price in Belgium averaged $51 — eight times higher than its objective value. However, the study suggests that the implicit purchase rate for warranties remains high, indicating a continued demand for these products.

“If you think about the types of people travelling — let’s say you’re coming from Thailand or Indonesia and staying at InterContinental Singapore — you would probably know the weather anyways versus travellers from Europe, who plan their travels ahead. And for them, having a ruined trip is a much bigger deal, so they would benefit more from this type of insurance,” Charoenwong told Insurance Asia.


Moreover, as the insurance industry ventures into novel territories, there’s a broader question about the necessity of insuring every conceivable risk. The proliferation of such offerings reflects a trend towards “financialisation of everything,” mirroring the buy-now-pay-later phenomenon.

“We’re in this world where we have more and more innovative products. It’s kind of interesting. But on the other hand, it’s worth thinking about whether or not we need to insure this stuff?” pondered Charoenwong.

“I think for the vast majority of people, and again, the research suggests, like the extended warranty is not worth it but people buy it all the time. Maybe because they’re overly risk-averse or they get sold into it even though they may not realise it’s a net loss for them,” he said.

Whilst innovative insurance products may bridge market gaps, there’s a fine line between enhancing customer experience and depersonalising hospitality.

Looking ahead, the insurance industry’s trajectory may see a balance between financial innovation and genuine customer-centric service. The challenge lies in maintaining the essence of hospitality whilst navigating the complexities of risk management.

Rather than solely relying on financial products, hotels can leverage goodwill gestures and personalised services to foster brand loyalty.

“These are financial institutions trying to find new products to make more profitable business lines [...] It seems a little ridiculous. Now the question for example is if I pay $200 a night, how much is really insured from the rain? And do we need to set this up as a new product as opposed to simply being given a voucher for coffee? In some sense, that’s insurance,” Charoenwong said.

“They can choose what to give for free and they can respond to how unhappy the people are and then get packaged in as good service. The concern I have is when you make it a financial product, it seems a little cold-blooded. It’s like ‘here’s the financial product contract you get’, as opposed to a gesture of good hospitality. And good gestures improve loyalty. To that extent, to me, it seems to be good service by the hotel,” he concluded.

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