Premiums in many lines of hotel industry insurance have been spiking in recent years, creating pressure on owners and management companies to ramp up their cost-control and risk management initiatives as well as maintain strong broker partnerships. LODGING spoke with a group of management company leaders on their assessment of the current market conditions and approach to obtaining affordable coverage for their various insurance needs. Participating in the discussion are Jerry Eichelberger, CEO/CFO, Essex Hotel Management; Mike Everett, executive vice president, CoralTree Hospitality; Chris Guimbellot, president & CEO, Hospitality International, Inc.; and Rodney Schunk, CPCU, senior vice president, risk management, Crescent Hotels & Resorts.
The State of the Market
Chris Guimbellot: All insurance costs have continued to increase in recent years and franchisees are struggling to find coverage—especially with exterior corridor hotels. Unfortunately, some franchisees wait until it’s too late and must settle for whatever insurance they get. We have noticed all premiums increasing year after year and have to shop for a new carrier each year. It seems like all premiums have been on the rise, but umbrella still seems like the biggest bang for your buck.
Jerry Eichelberger: Hotel insurance costs have been climbing, with property, general liability, and umbrella premiums on the rise, while workers comp remains more variable, depending on loss experience. … Cyber premiums and coverage levels are also on the rise. [And] property insurance, especially for wind and hail damage from named storms, is harder to secure and comes with steep deductibles. Liability policies are also tightening, with more exclusions for sexual harassment and trafficking.
Rodney Schunk: Because there are many different lines of insurance—workers comp, general liability, umbrella, property insurance, etc.—when you get a large spike in one, sometimes you get lucky and get a decrease in the other. So, your overall insurance bill is roughly the same or a modest increase. But what we’ve experienced in the insurance market over the last three years at least—and for some lines, the last five years—is a significant increase on rates and premiums generally across the various types of insurance.
Mike Everett: The insurance market is particularly challenging at the moment, demanding a much greater volume of underwriting information, enhanced loss control measures, clear demonstration of effective risk transfer, and an unwavering commitment to ensuring the safety of both our guests and employees. We have seen an increase in general liability/umbrella insurance due to the tightening of the market, loss development, and increased claim costs, but property insurance has been fairly stable, and our auto, workers’ compensation, and cyber renewals have been favorable.
Factors Behind the Rising Costs
CG: The three main causes for increases are natural disasters and general guest liability lawsuits that include human trafficking and ADA— both physical and digital. Digital refers to a legal action filed against a company alleging that its website or digital platform is not accessible to people with disabilities.
JE: General liability and umbrella costs are rising due to an increase in claims and larger settlements for incidents like slip-and-fall accidents, sexual harassment, and trafficking cases.
ME: Losses and loss development have been prominent topics of discussion, seemingly driving general liability premiums while umbrella and excess markets are simultaneously reducing their capacity.
Coverage Availability and Limitations
CG: There are definitely less carriers writing policies, and some of the less expensive ones are simply not good and have many restrictions.
RS: It’s a reduction in capacity. What I mean by that is each carrier, depending on the line of coverage, will only put so much money at risk per insured. … Let’s just say, hypothetically, I want to buy $50 million in coverage. I cannot buy $50 million from one insurance carrier. I have to stack them: I buy $10 million from the first carrier, I buy $20 million from another carrier, etc. … It was a lot cheaper to buy it all from one carrier than to have four or five different policies to get you the same limit.
ME: Occasionally, we are asked to provide property insurance in a wildfire-prone area, and that has been the biggest challenge. In some cases, carriers are reluctant to quote solely based on a property’s address.
Insurance Costs and Older Properties
CG: The rise in insurance costs is significantly impacting older properties in several ways. Some insurance companies are refusing to write policies for older hotels, particularly those with exterior corridors. When policies are available, they often come with numerous exclusions, including human trafficking, abuse and molestation, and assault and battery.
ME: [Property age] can be an issue when trying to secure property insurance due to aluminum wiring, plumbing, roofs, etc. Older properties tend to have a higher likelihood of claims, so carriers will rate higher for these assets depending on the type of property program you have and your carrier’s risk appetite.
Balancing Insurance Costs and Needs
CG: The best approach to balancing insurance costs and needs is to prevent claims and implement procedures that lower costs. This requires constant monitoring and updating your property to reduce the risk of filing a claim. Implementing human trafficking awareness by training staff and considering security systems is essential. Ensuring ADA compliance is also important, as ADA offers many resources specifically for hotels with their Guidance & Resource Materials. Employee Practices Liability Insurance (EPLI) may be necessary to protect against ADA claims. Using a third-party agent allows for shopping around to find the best rates for your required coverage.
RS: A continued focus on safety and risk control programs, property conservation programs, and such can be utilized to keep your claim history low, so you’re more appetizing.
JE: Our hotels are all franchised, and the liability insurance levels are dictated by the brands, and lenders dictate the property coverage levels, so little balancing is available. Obtaining multiple competitive quotes and making sure there are no unneeded bells and whistles is key. Obtaining quotes from multiple brokers can often provide access to more carriers. For workers’ comp, consistent staff training to limit injuries pays dividends.
ME: It is critical to check in with your brokers and carriers throughout the year and update budgets as needed. When the market is soft, we tend to secure additional limits, and when it is hard, we may have to cut back on limits. It is a bit of a balancing act.
The Higher Deductible/Lower Premium Strategy
CG: Opting for higher deductibles to lower premiums is a common strategy. However, it’s crucial not to lower coverage amounts. While specific recommendations aren’t made to hotels, this approach is frequently used to manage insurance costs.
JE: We’ve opted for higher deductibles in only one or two cases, as they don’t significantly reduce premiums unless they’re extremely high, which adds risk.
RS: You can increase some deductibles, but you’re somewhat restrained by the brand requirement. … And if you’re a single hotel, you’re not going to be able to take a high deductible because the hotel can’t afford one or two or three hits of a couple hundred thousand dollars [for example]. But if you’re a larger company that has many hotels, then you can [take a high deductible] and smooth that out amongst everyone, because not every hotel is going to have that type of loss. So the larger you are, the larger the deductible. And it’s difficult to pass that full deductible down to the hotel operating level; you may need to hold it at the corporate level and blend it out with everyone.
How Brokers Can Help Meet the Challenge
CG: A good broker plays an important role in potentially mitigating insurance costs. They explain the coverages you have and those you don’t, helping you determine what is and, more importantly, what is not included in a policy. For instance, they can verify if your liability policy covers human trafficking, and if not, help you purchase separate coverage that includes legal defense and damages coverage. This is particularly valuable since defending a case, even when you’re not at fault, can be extremely expensive. You may need additional specialized insurance, such as cyber, human trafficking, and EPLI.
JE: A good broker helps mitigate insurance costs by identifying carriers actively seeking hotel business in a specific location and leveraging relationships to secure multiple competitive quotes. They then work with those carriers to assemble the best coverage package at the lowest possible cost.
ME: [Look for] a broker that understands your business, that has good resources, and that is invested in your company’s success. It is important to us that our broker works with carriers that are financially stable and that help us build a sustainable program. Building strong and trustworthy relationships with your brokers speaks volumes, especially in a hard insurance market. This goes the same with your underwriter. We know them, spend time with them, and have open lines of communication.
RS: From my standpoint, it is very important to have a solid broker who is really focused on relationships. Insurance is a relationship. It’s not looking for the cheapest policy every chance you get, because you may only have that policy for one year. It’s identifying financially stable insurance carriers that understand your company, the risk management department, and all the programs and risk mitigation tools that you have in play, and you develop that long-term relationship with them.
Backing From the Brand: Helping franchisees with insurance coverage and procedures
With insurance premiums on the rise, franchisees need all the support that brands can provide, beginning with flexibility in required coverage levels, noted Jerry Eichelberger, CEO/CFO, Essex Hotel Management. Chris Guimbellot, president & CEO, Hospitality International, Inc., suggested several other ways that franchisors can help in this area:
- Recommend potential insurance vendors.
- Remind franchisees early about insurance expiration, typically reaching out 90 days in advance to allow time for securing new coverage.
- Offer training, such as human trafficking certification, which is crucial since lawsuits often claim employees weren’t properly trained.
- Assist with ADA checklists.
