With rising insurance costs eating into profits, experts share advice
If you experienced sticker shock the last time you shopped for insurance coverage for your hotels, you’re in good company. Stubborn inflation rates, destructive weather events, and high property valuations have contributed to poor loss ratios for insurance carriers, prompting some to pull out of coastal markets, regions frequently hit by hail, and other areas seeing high claims activity.
Consequently, hoteliers have fewer insurance options, and when they can get coverage, it typically costs a bundle. Last fall, a CBRE survey of 2,565 hotels found that insurance was their fastest-growing expense, having climbed an average of 19.5% since 2022. CBRE estimated that last year, insurance costs accounted for 1.7% of the average hotel’s operating revenue, up from the long-term average of 1.2%.
“Rates are going up; there’s no way around that,” said Luis R. Esteves, principal at Jansen Adjusters International, which helps hotel clients get their claims settled. “I don’t know any insurance agents who have been able to get rate cuts for clients in the past two years. What they’re doing is trying to keep the same price or close to it, but then the level of coverage drops.”
While premiums are rising, carriers also are being more selective in offering coverage to hotels, according to Paul A. Mayo, producer at PointeNorth Insurance Group. Properties that haven’t upgraded their roof, plumbing, HVAC, and electrical systems in 10 to 20 years are having a harder time obtaining competitive coverage, he said.
Similarly, hotels with outside corridors are less attractive to carriers because they provide a less-secure environment for guests, and hoteliers have limited visibility into who is visiting their properties, Mayo said.
Buyers and builders, take note: Wood-framed hotels face challenges in getting coverage because they burn more quickly than steel-framed or concrete-block hotels, leading to larger losses for carriers, said Becca Fowler, founder and managing partner at Fowler Consulting. Carriers also prefer properties with sprinkler systems that cover their attic spaces and meet the National Fire Protection Association’s Standard 13, she said.
Though every situation is unique, experts say there are two key areas in which hoteliers need to shore themselves up when it comes to seeking the best insurance coverage possible for their properties.
PREPARE YOUR DOCUMENTS
To get good coverage, hoteliers should team up with an agent who specializes in hospitality and has access to the full range of potential carriers, Fowler said. Agents will work with hoteliers months in advance to ensure their applications for coverage are “thorough, complete, and accurate,” recognizing most insurers want to see a hotel’s insurance loss runs for the past five years, she said.If hotels have switched carriers, they’ll need to track down loss runs from each carrier to build that five-year history. Hoteliers who have owned their properties for less than five years should be able to provide loss runs for as long as they’ve owned those properties and should ask sellers for their recent loss runs, Fowler added.
Not having a full loss history is the “biggest roadblock to receiving quotes,” she said. “Without a full loss history, we often can’t get a quote at all.
“Those loss runs need to be currently valued, meaning they should have been generated by the carrier within the past 60 days, even if the claim is from four years ago,” Fowler added. “Carriers care about this because sometimes closed claims will be reopened, open claims may now be closed, and the reserve amount and the total amount paid out may fluctuate, so carriers want to see the updated status of claims.”
For large losses, operators should provide a narrative of what happened and how it was remediated so the broker can include it in the submission to the carrier, Fowler said. “It allows the operator to set the record straight,” she said. “Otherwise, the carrier will make assumptions.”
If a hotel has sustained several losses of the same type, such as slip-and-fall accidents, even if they’re relatively minor, it’s worthwhile to spell out what your property has done to prevent future losses. If carriers see recurring losses but don’t receive information about the causes and corrective efforts, “they’ll be reluctant to cover that type of loss and might reject the submission altogether for high claims frequency,” she said.
Brokers typically send applications to carriers two to three months before current policies expire and expect to receive quotes with about a month remaining. That gives brokers and clients time to review coverage terms and seek out additional quotes if they’re unsatisfied with their options, Fowler said.
A good broker will ensure hoteliers understand which types of claims are covered and which aren’t when selecting a policy. Many carriers are limiting or excluding coverage for abuse and molestation, assault and battery, bedbug infestations, mold and fungi, ruptured sprinklers, or damage from weapons – the latter of which is an important consideration in states with lax gun laws, Fowler said.
“And if they’re excluded or sublimited in the general-liability policy, then most of the time, they won’t be covered in the umbrella or excess-liability policy that sits above it either,” she said. “So, you want to do what you can to get those coverages included with full limits in the general-liability policy. And if they aren’t included with full limits, or if the coverages are excluded outright, then the hotelier should at least be aware of that.”
Knowledgeable agents will help clients determine whether they need types of coverage that often go overlooked, including cyber liability and employment-practices liability, Mayo said.
“It’s important for hoteliers to work with a broker who helps educate them about insurance instead of just providing them with the cheapest quote,” he said. “When you get an insurance proposal, don’t just look at the price. Make sure you go through that proposal, ask questions, and learn from your broker what you’re actually getting for that price.”
WEIGH YOUR OPTIONS
Hoteliers with multiple properties should explore different strategies for insuring their portfolios, which may mean having one policy for all properties, breaking them up into groups, or purchasing individual policies, Esteves said. A single property with an extensive loss history or an elevated risk exposure could drive up the cost to insure the portfolio, so it might make sense to insure that property separately, he said.
Conversely, a blanket policy may give hoteliers more buying power and allow them to spread out their risk more effectively, he said. In a simple example, a hotelier with 10 properties totaling $10 million in value may be able to save money with a single policy for a total insured value of $7 million. In that scenario, the hotelier is taking advantage of the miniscule likelihood that all 10 properties will sustain losses in a single year.
“If you haven’t sat down with your broker and talked about your specific risks, then you’re just buying retail, and retail is very expensive,” Esteves said.
Risk managers can help hoteliers improve their properties and implement policies to control insurance costs, Esteves said. Upgrading roofs, doors, windows, sprinkler systems, elevators, smoke detectors, mechanical systems, and water sensors to detect leaks can mitigate the damage from natural or manmade disasters, for example.
Spending more on one-time facility improvements may be worth it if they help hoteliers save money on insurance, which they purchase every year, he said.
“If you don’t have a risk manager helping you present your property, and you’re depending on the basic information you can give your agent, you’re losing out,” Esteves said.
Hoteliers, especially those with older properties, should be certain to note any facility improvements in their applications, Fowler said. Otherwise, carriers will assume no upgrades have taken place, making properties more difficult to insure.
Risk managers can assist hoteliers in setting up policies most carriers now ask about in applications. Hoteliers become more attractive to carriers when they’ve established policies to recognize and report human trafficking, sexual harassment or other criminal activity, and when they perform background checks on jobseekers.
Likewise, hoteliers may benefit from having plans for a medical crisis, active shooter, or evacuation, as well as policies around facilities inspection, prominent safety signage, and incident investigation. Highlighting these policies in applications may help hoteliers save money on premiums or obtain coverages that otherwise may have been excluded from policies.
Hoteliers should be aware that online reviews can affect a carrier’s decision about offering coverage, Mayo said. Reviews showing photos of poorly maintained facilities or complaining about suspicious activity in the parking lot, for example, can raise concerns about hoteliers and their clientele.
“Unfortunately, we live in a world of potential Internet underwriting,” he said. “So, if an insurance carrier gets a submission, they’re going to do an extensive review of the property, and those are red flags that insurance carriers are going to hone in on.”
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