The marketplace for the lodging industry is vibrant. Scottsdale, Colony, Markel, Admiral, USLI, Rockhill, Burlington, Indian Harbor, American Empire Surplus Lines, Travelers, Chubb, Founders, James River, Aspen, First Mercury, Emerald, Western World, Penn American and Arch are just a few of many companies providing coverage.
Michelle Collins, senior broker/underwriter at London American Risk Specialists, Inc., observes, “Our experience shows it is tougher to find carriers willing to write package policies rather than monoline policies, due to the property exposures. They are more comfortable with the GL side than the property.” However, she does have three markets that provide package coverage.
Jim O’Neill, director of marketing at New Empire Group, notes the segmenting of the market by explaining, “Multiple carriers are writing various lines for hotels and motels from primary programs, coastal programs, and excess liability and umbrella programs.
“Travelers has an appetite for hotels, motels, and bed and breakfast operations, including full, limited, and extended stay facilities, as well as hotel convention and conference centers.” explains John O’Connor, vice president product and underwriting of Travelers Select Accounts.
According to Marla Donovan, CPCU, vice president of product development at Burns & Wilcox, both admitted and nonadmitted paper is available. She explains, “When the market hardened in 2002, it was mostly nonadmitted carriers. As the market progressively softened over the next 6+ years, standard carriers were increasingly willing to write this class. In the first half of 2009, we have seen some tightening of underwriting risk selection on the part of some standard markets.“
All of the markets at AmWINS Group are nonadmitted, according to Paul Rovelli, vice president at AmWINS Brokerage of New York, but he says, “There are options on admitted paper either directly to retailers or through programs.”
According to Ms. Donovan, coverages for lodging risks commonly provided are real property, contents, business interruption/loss of income, extra expense, general liability, personal injury, liquor liability, auto liability and physical damage, and umbrella liability. Mr. Rovelli adds garagekeepers and innkeepers liability to the list.
The exposures for the industry are routine and extremely varied because of the different amenities offered. According to Mr. O’Connor, from the liability standpoint, life safety and premises security are major concerns for the safety and well-being of guests. Pre-loss risk control measures are vital, as insurance alone does not cover the consequential loss of reputation from certain losses.
Our experts all agree that slips and falls, security of guests, and evacuation of premises are the most significant liability exposures. Guest security includes not only room entry issues but also parking lot assault and battery. And loss exposures increase as amenities are added. Restaurants, swimming pools, exercise facilities, room service, live entertainment, and beauty shops are just a few commonly added guest services.
In addition, there are a number of property related exposures. The first is always fire, followed by natural disasters such as hurricanes, tornados or floods. Ms. Donovan adds an interesting note here. “Hotels–especially luxury hotels–were identified as a type of soft target for terrorists by the Department of Homeland Security in 2002.” According to Ms. Collins, business income is very significant, along with extra expense, equipment breakdown, crime, and fiduciary.
Workers compensation is also a concern. Mr. O’Connor points out that while “exposures stem from what the employees do and the activities they are involved in, the greatest potential for employee injury arises out of the housekeeping operations.”
Mr. O’Neill observes that coastal property, livery exposures, and risks with poor security are the most difficult to place. Mr. Roveilli adds that the type of facility can make it hard to place. He notes in particular that a motel is more difficult to place than a resort, and adds that location, claim frequency, and the type of claim can make a risk difficult to place.
According to Ms. Donovan, although a number of factors can add challenges, such as more underwriting questions, more analysis, and higher costs, the market is currently able to accommodate most exposures. Ms. Collins adds that a risk might go into the surplus lines markets, hire a risk manager to keep losses down, and increase its security.
In voicing his agreement, Mr. O’Connor explains that it is all about the management. He says, “It is critical that hotel/motel management have a positive attitude toward preventing and reducing losses. If common hazards such as life safety, security, maintenance and housekeeping are neglected, a risk will be extremely difficult to place in traditional markets.”
It is important to offer the broadest coverages available, even though the pricing may cause a customer to reject some of them. According to Mr. Rovelli, particular exclusions that should be resisted are those dealing with assault and battery, abuse and molestation, and any type of security warranty. In addition, Ms. Collins warns against theft and punitive damage exclusions and Ms. Donovan mentions pandemic, personal injury and liquor liability exclusions.
At the present time, pricing is competitive. According to Mr. O’Neill, prices are dropping compared to a year ago. Ms. Donovan is not seeing wild swings up or down, which she characterizes as a leveling out. Ms. Collins explains, “Market share is what it is all about and some carriers have dropped their rates to stay in the game. The market has gotten softer in some areas and harder in others. For example, it is easier to place coverage on franchise hotels than privately owned facilities."
There are some very significant geographic concerns. Both Mr. Rovelli and Mr. O’Neill point out that, on the property side, coastal and earthquake-prone locations can both affect pricing and capacity. Ms. Collins agrees and adds high crime, tornado, or sinkhole-prone areas as potential problems. Ms. Donovan goes on to add that certain liquor liability jurisdictions can be difficult. She then points out that, with terrorism exposures, “underwriters definitely take into consideration the location of the property. Current thinking is that a hotel in downtown Washington D.C. is more at risk than a motel in suburban Maryland.”
According to Mr. O’Neill, the hotel and motel industry is suffering an average reduction in occupancy rate of 18%. However, the need for coverage remains. One good aspect is that with the reduction in the number of guests, there is a reduction in variable exposures because there are fewer employees and guests. However, fewer employees can result in lax maintenance and security and this is bad for property and general liability claims. It can also lead to more serious injuries to employees who are stretched thin and may be prone to malinger because of potential future layoffs.
One expense that hotel and motel risks may consider cutting is insurance. Ms. Donovan says, “While it may be tempting to cut back on the amount or type of insurance, this is exactly the wrong time to do it. There is a great deal of evidence to suggest that lawsuits and litigation increase during a period of economic uncertainty as people seek to find ways to obtain money in the face of diminished savings, lost jobs, etc.” Mr. O’Connor points out that, “hotels and motels that cut back in the area of risk control at this time will find themselves more susceptible to loss and therefore will be a less desirable risk for any insurance company.“
This industry has been hit particularly hard by this economy. It is at times like these that an informed insurance agent can make a big difference by becoming more of a partner than a service provider. |
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