Insurance premiums have skyrocketed for hospitality owners in recent years, both for liability and property segments.
The real issue has been massive increases for less coverage. “I have been doing this for 35 years, and 2023 was the hardest property market I’ve seen. We saw some hotel companies experience over 100 percent increases. The property market has turned around the last two years, and many hoteliers are seeing sizable decreases,” said Jackie Collins, area senior VP and executive director of the real estate and hospitality practice at Arthur J. Gallagher & Company.
“In general, the hotel space is probably the toughest it’s ever been, especially post 2020,” said Paul DiBenedetto, senior vice president for global insurance and employee benefits brokerage Hub International, heading up the hospitality franchise division for HUB Midwest. He commented that the main issue isn’t just the increase, but eliminating major coverage for things like human trafficking, sexual abuse and molestation and assault and battery. “Such high verdicts and settlements are a huge risk for carriers. These claims lag seven to 10 years after the fact, so carriers are seeing old claims.”
“Annually, it is not that uncommon to see a 15 percent increase in a given year,” said Rob Hoover, risk advisor, senior vice president, Risk Strategies. But today, there are some geographic areas that are seeing an over 100 percent increase over a one to three-years period of time, a phenomenon that started around the pandemic era.
The Why
Several factors are driving these increases.
The weather events are not in anyone’s control, but unfortunately, they can have the biggest impact on insurance due to their unpredictability. “I think, more than ever, in the last five years, we are seeing more and more natural disaster events, depending on what part of the country you’re in,” said Hoover. Between wildfires, hurricanes, earthquakes and high wind events, insurance companies are becoming more reluctant to write coverage, particularly for hotels that were built prior to 1980 due to construction standards that existed at that time.
Collins agreed that where a hotel is located definitely affects premiums. “The primary factor contributing to high rate increases in 2023 was the number of large loss events. Many of these events were in areas subject to convective storms (wind/hail), hurricanes, wildfires and earthquakes,” she said.
For liability issues, location also matters not just for weather events but from a crime standpoint: crime rates in an area do drive up insurance prices. “Every location gets a crime score; the higher the crime, the higher the premium,” said DiBenedetto.
He added that reinsurers are being more selective now, limiting the amount of risk that they take on, as they are “... taking large losses on property in general across the country.”
Collins noted that as reinsurance costs have leveled off since 2023, carriers have been able to reduce premiums.
Another major reason for the escalation in liability insurance premiums is the recent history of nuclear verdicts, says Collins, which makes it difficult for insurance companies to determine the proper reserve for a claim.
DiBenedetto said that poor TripAdvisor scores can inflate your premiums, particularly if your star rating sinks below a 3 or a 3.5.
The Impact
On one extreme end, the skyrocketing costs of premiums has led to hotels being pushed past the breaking point, with some going out of business as they cannot afford to keep operating due to this financial strain. With the overlap between the financial obligations that hotels must juggle and banks tightening their lending requirements, meaning hotels must carry more insurance, it creates a daunting proposition for some hotels. “It becomes unaffordable to operate a hotel anymore,” said Hoover.
Strategies
Hotels can proactively address some issues in order to position themselves to get better rates.
Finding the Right Insurer/Building Relationships
First, Hoover said that hotels should actively position themselves as low-risk clients to insurers; this starts with choosing an insurance broker who specializes in the hospitality industry, as this person would best understand how to differentiate these types of properties. DiBenedetto agreed, adding, “Educate yourself; understand what you’re buying, understand the coverages that you need and what they are.”
How you present yourself to your insurance company can make a difference, advised Collins. She noted that underwriters are inundated with thousands of submissions a year, so she offered some advice about ‘how to get to the top of an underwriter’s stack.’ “Make sure all information in your submission is accurate as you want the underwriter to know the data is credible. Make sure your statement of values (SOV) is 100 percent completed, including the secondary rating factors, with accurate info—if you don’t, that can be detrimental to the price the carrier provides,” she said.
Collins added it is also important to build relationships with underwriters and encouraged hotel owners to meet them in person, if possible, as that could go a long way toward instilling confidence in how you manage your property. “No one can tell your story better than you can,” she said.
Risk Management: Training and Technological Investments
“Insurance is a tool; risk management is the process of strategy,” said Hoover. Thus, insurance alone does not reduce the losses but rather, actively managing and mitigating the risks can make yourself more attractive to insurance companies.
From a property standpoint, Hoover said that there are steps hoteliers can take to physically strengthen their buildings. For example, he said, “If you’re in a wildfire-prone area, reinvent what your landscape looks like near your building. If you’re in a wind-prone area, trim your trees so they don't fall if wind comes up.”
Certain upgrades, like energy efficiency or sustainability improvements, will mainly affect the property portion of insurance. In addition to the physical property, Hoover said that hotels should pay attention to the liability side by improving risk management and staff training to lower liability risks. “Training is a huge way that operators can help reduce liability,” he said. Proper training could reduce slip and fall or kitchen accidents, for example.
Unfortunately, one big issue affecting the hospitality industry from a liability standpoint is the proliferation of sex trafficking. Thus, training staff is key, particularly in this area, said DiBenedetto.
Collins agreed that these training programs were a good way to reduce price. “The brands perform annual quality control inspections at franchised locations; keeping QC sores high helps with underwriter confidence.”
Hoover pointed to certain technology investments that potentially might reduce insurance costs. For example, a tech-based telemedicine program that allows injured employees to immediately speak with a nurse or doctor can reduce unnecessary ER visits and lower workers’ compensation claims. Another is the use of wearable devices and GPS-enabled housekeeping cars that track staff efficiency.
As insurers reward proactive risk management, other safety practices that should be demonstrated are conducting and documenting periodic fire extinguisher and kitchen equipment inspections. From a liability standpoint, it’s the same concept: “Share with underwriters what measures are in place to prevent assault and battery incidents. Outline security cameras, security guards and/or lighting that is in place that would make your property a better risk to insure. Underwriters will be more prone to give you a better rate,” said Collins.
On the flip side, Hoover warned that technology can generate cyberattacks which could make hotels more vulnerable and therefore, operators need to be diligent. “Hotel operators specifically are constantly getting bombarded with emails or phishing; one of the most attacked industries is hospitality,” said Hoover.
Another piece of advice from DiBenedetto, particularly for smaller independent hotel owners, is to join some hotel associations.
Documentation
Experts all agree that hotels need to provide documentation about everything that they are doing to mitigate risks. “You need to communicate what you do to your property and what is your maintenance plan,” said Hoover. “When you have those types of procedures in place, you can leverage those to help reduce costs.”
The Future
Most experts agree that the insurance costs may start to level off in the coming year or two, with Hoover predicting that next year will see a flattening to the high single digit increases rather than double digits.
“It is expected that property rates will continue to fall in 2026. Regarding liability, that is unknown. It may be a slow process as insurance carriers and hoteliers continue to push for tort reform,” said Collins.
This article was originally published in the November/December edition of Hotel Management magazine. Subscribe here.