Property and Casualty
Slower bookings, insurance challenges make for a tough year in hospitality
April 2, 2024
A combination of slowed bookings and a volatile insurance market is likely to make this a challenging year for the hospitality industry. After a two-year surge following the COVID-19 lockdowns — industry insiders refer to it as “revenge travel” — the sector anticipates more modest growth in demand throughout the remainder of 2024.
As hospitality organizations prepare for a year of reduced activity, they must also brace for another round of unpredictable capacity around property and casualty insurance renewals. Just as hotels reach full capacity during NASCAR races or Taylor Swift concerts, insurance carriers max-out their capacity to insure certain hospitality risks.
Alera Group foresaw this in our 2024 Property and Casualty Market Outlook.
“Fewer insurers are interested in the sector. Heavy Property and Liability losses are leading insurers to reduce the business they write,” we reported. “Some are pulling out of the sector entirely.”
Proactive planning can improve the likelihood of securing favorable coverage terms, similar to the way savvy travelers secure a preferred hotel room during peak times. Underwriters seek to insure the most favorable risks and prioritize best-in-class accounts during periods of limited capacity.
To navigate this challenging renewal cycle, consider three key strategies:
- Engaging with specialized brokers;
- Prioritizing risk management practices;
- Exploring alternative markets.
Engaging with specialized brokers
Given the nuanced nature of hospitality insurance, partnering with a broker who specializes in the hospitality sector increases the likelihood of securing comprehensive coverage. This is why it’s important to prioritize broker experience and market access to leading hospitality insurance carriers. A proficient broker will evaluate your existing coverage in alignment with your risk assessment and then work with underwriters to negotiate optimal terms, conditions and limits.
For Property Insurance, capacity constraints and unfavorable renewal terms prevail, characterized by lower limits and higher deductibles. Alera Group reports on the impact of FEMA-defined areas in particular in the Market Outlook:
“The increase in Property Insurance costs is sharpest in states FEMA defines as having the highest ‘natural-hazard risks.’ Florida and California have already seen significant increases in rates. However, Texas, Arizona and Nevada — each at the highest level of risk, according to FEMA — have largely avoided outsized insurance increases to date. You can expect insurance costs to rise further in these states, particularly in coastal markets such as Houston, more so than in inland markets such as Austin and Dallas.”
A broker’s buying power with hospitality carriers can be advantageous in these areas, especially when it comes to Property Insurance. Established relationships can prove vital in getting underwriters to reconsider declinations or unfavorable renewal terms. An adept broker will leverage relationships and advocate on your behalf.
Prioritizing risk management
Proactive risk management measures such as enhancing property security, providing new employee training programs and staying abreast of regulatory developments impacting the industry will help mitigate exposure.
One emerging legal risk unique to the hospitality sector is the increasing number of human trafficking lawsuits.
“According to the Global Slavery Index, there are over 40 million victims of human trafficking worldwide, and a significant portion of these crimes occur within the confines of hotels,” Alera Group notes in its Market Outlook.
Under the Trafficking Victims Protection Reauthorization Act, hotels can be held both civilly and criminally liable for failing to prevent and report trafficking on their premises.
Recent case studies highlight substantial settlements, such as the $24 million settlement paid by Days Inn to eight victims who alleged the hotel failed to intervene and a $37.5 million arbitration award to three victims sex-trafficked as minors at a Philadelphia hotel.
Human trafficking claims may trigger various coverage provisions, including General Liability and Errors and Omissions Liability. However, it is crucial to note that many policies now incorporate exclusions for allegations of sexual abuse, molestation and human trafficking. If you have these exclusions, there is no duty to defend against this emerging legal risk. This underscores the importance of ongoing employee training and education to mitigate these risks.
The American Hotel and Lodging Association (AHLA) offers free training to employers and employees on how to recognize and respond to human trafficking through its No Room for Trafficking initiative.
Exploring alternative markets
In a dynamic hospitality sector, adaptability is vital for long-term insurability and success. As market conditions evolve and new risks emerge, it’s essential for hospitality organizations to remain agile and responsive.
When standard insurers are reluctant to provide coverage amid challenging market conditions, exploring alternative market options such as surplus lines insurers or Captive solutions can prove beneficial. Captives can provide leverage to control insurance costs and coverage.
A knowledgeable broker well-versed in alternative markets will ensure thorough exploration of viable options and help you understand the choices.
What you can do
By partnering with a specialized broker, focusing on risk management and exploring alternative options, hospitality organizations can enhance the safety of their operations and improve their insurability in the marketplace. This approach appeals not only to underwriters but also to prospective guests, ultimately benefiting stakeholders across the board.
For a broader look at navigating insurance market conditions, download the 2024 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current P&C market, with analysis categorized by industry and lines of coverage.
For expert advice on safeguarding your hospitality or gaming organization, work with an Alera Group expert who specializes in this sector.
CONTACT AN ALERA GROUP SPECIALIST
About the author
Christopher Hayes
Managing Director, Southeast Region
Alera Group
Chris Hayes delivers insurance and risk management services to large hospitality, senior care, real estate and construction organizations throughout the Southeast region. With more than three decades of expertise, he navigates complexities to cultivate strategic opportunities for his clients.
Contact information:
About the author
Christopher Hayes
Managing Director, Southeast Region
Christopher Hayes became Alera Group’s Managing Director, Southeast Region, in 2023 after two years in a similar role with Propel Insurance, an Alera Group Company. Prior to that, he spent 29 years in senior leadership roles at McGriff, a national insurance brokerage firm. Rooted in a strong relationship-driven belief system, he brings his extensive experience to further spur Alera Group’s growth and collaboration across the Southeast Region.
Chris is a graduate of the University of Georgia, where he earned a bachelor’s degree in business administration with a double-major of finance and risk management/insurance.
Mark earned a bachelor’s degree in business administration and marketing from California State University, Chico.
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