For those who weathered the recent near collapse of the sector, the American Hotel & Lodging Association entered 2023 with optimism that hotel room demand would surpass pre-pandemic levels and occupancy rates would continue trending upward. This confidence continued in May, when the AHLA forecasted a strong summer travel season for both business and leisure travel.

At the same time, hotels and motels across the country are grappling with worker shortages and inflationary pressures. These hospitality establishments are also facing a challenging insurance renewal cycle.

“Markets are dropping like flies in the hotel and motel world,” explained Joseph Indig, vice president of sales and marketing at Amalgamated Insurance Underwriters (AIU). “Just about every time I talk to a client, they’re telling me, ‘Oh, another market just left the marketplace.’ Standard markets are leaving. E&S markets are leaving. Markets and programs are just disappearing day by day.”

Difficult Property Outlook

According to the latest numbers from Marsh, property insurance pricing in the U.S. increased by 19% during the second quarter of 2023, compared to 17% in the first quarter, marking the 23rd consecutive quarter in which prices rose. Marsh said the main drivers of Q2 property price hikes in the U.S. are the cost of reinsurance and capital, strong capacity demand, limit- ed new insurers, and ongoing losses.

In June, Alera Group report- ed that the hospitality sector market had shown signs of stability across most coverage lines — except for property insurance. “Hospitality property insurance buyers will experience a convergence of increased premiums, deductibles and valuations,” Alera wrote on its website. “Expect a challenged property outlook throughout 2023.”

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Alera attributes the challenging trend in the hospitality property insurance market to three factors — “weather-related catastrophes in 2022, record inflation and the high costs of rebuilding. Properties in catastrophe-prone locations will see the greatest pricing increases and decreases in availability.”

AIU’s Indig said its in-house underwriters look closely at how well-managed hotels and motels are. They investigate through online reviews, photos posted on the internet, and maybe even a phone call to the establishment’s front desk, “just to make sure that things are up to the standards of us and our carriers,” Indig said. Loss history is also a key component in determining coverage.

“As the market’s gotten harder, they’ve gotten tighter on their guidelines as far as loss history,” he said.

AIU isn’t the only company stiffening its approach. As standard market capacity shrinks, more and more locations that may have been “great fits” for standard carriers are coming over to the E&S side, Indig said, adding that the few that are left are getting a lot more submissions than they used to.

“The E&S carriers are getting a lot more locations that … a year, or for sure two years ago, would have been great standard plays,” Indig noted. “But due to, let’s say frame construction that’s built pre- 2000 or other factors that just make them less desirable … those are coming towards the E&S marketplace as well now.”

Hard-to-Cover Risks

When it comes to renewals, Amy Vitarelli, senior vice president and hospitality insurance practice leader at Heffernan Insurance Brokers, said rate and premium increases and avoiding surplus lines are best-case scenarios for her policyholders. Heffernan has a national footprint and works with franchises and boutique hotels.

“It’s really hard some days — or most days — because all I feel like I do is just give my clients bad news,” Vitarelli said. “Or even terrible news. I feel like they got through this really challenging time, and business is better and, in some cases, thriving. But then, now here I come with all the challenges that are happening on the insurance program.”

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