Impressive growth seen in market despite unthinkable issues
The global travel industry was worth some $1.6 trillion in 2017, according to a 2018 travel and hospitality industry outlook published by Deloitte. As economies improve around the world, the industry will continue the upward trend. Rising disposable income, says the Deloitte study, coupled with new wanderlust, has helped bring new consumers to the market.
To what extent? The report reveals that 10.2% of global GDP belongs to the travel and tourism sector.
That is a boon for the hotel industry, which has seen equally impressive growth. The report projects 5% to 6% growth through this year, which could allow the hotel industry to top $370 billion in gross bookings.
“The hotel industry has responded to (human trafficking) with mandatory training that teaches employees how to recognize the signs … and how to follow protocol for reporting it.”
Southern Hospitality Underwriters
According to Sean Young, the United States is poised for the same kind of exponential growth. Young, associate vice president and hospital segment leader for Distinguished Programs, says that recent tax cuts and possible future tax reform could put more disposable income into Americans’ pockets, increasing travel activities. “Add to that rising interest rates that are prompting hoteliers to make capital investments and build properties, and you have both increasing travel and increased capacity,” he says.
Nonetheless, the hotel industry faces dome daunting challenges that range from the merely bothersome to the unthinkable.
Trends and issues
In 2017, over 4,400 sex trafficking cases were reported to the National Human Trafficking Resource Center. An estimated 40.3 million people are currently in trafficking or exploitative situations, according to the International Labor Organization.
“The hotel industry is increasingly at the center of human trafficking cases,” says Brad Brown, program president for Southern Hospitality Underwriters. “A few states have adopted laws allowing lawsuits to be filed against hotels that willfully turn a blind eye to trafficking at their hotels, and corresponding claims are increasing.”
Brown’s sentiments are reinforced by news reports of human trafficking rings that operate out of hotels. In April alone, arrests were made in Georgia, Colorado, New Jersey, and New York that involved human trafficking operations in hotels.
The exposure can be expensive, says Brown. “In January, for example, a victim of human trafficking filed a lawsuit in Houston against fifteen hotel chains and five truck stops. The hotel industry has responded to this trend with mandatory training that teaches employees how to recognize the signs of trafficking and how to follow protocol for reporting it.”
That activity, along with the recent Las Vegas shooting, has the hospitality industry rethinking just how much privacy guests are entitled to enjoy. “Where the hospitality industry has always been hypersensitive to service, we are seeing a shift away from service in favor of safety,” Young says. “Where hotels used to allow a ‘Do Not Disturb’ sign to hang on your door for days, many hoteliers now insist, following the Vegas shooting, that a hotel employee enter every room at least daily.”
“From the wholesale side we are seeing the admitted carriers either pulling out of this market or increasing rates due to claim activity, which is allowing the E&S carriers to place more business for both property and casualty lines,” says Dustin Applebaum, managing partner at Element22 Insurance Services. “Carriers are becoming creative in offering more bells and whistles to cater to this class, from hotel crime coverage to guest property coverage.”
Applebaum sees the hotel business as an evolving class that’s being influenced in part by claims. “For instance, bedbugs are still an issue, albeit to a lesser extent than in years past; but now, because of pressure from lawmakers, a few companies have recently come out with bedbug coverage.”
“Constant maintenance and attention to safety can help hotels avoid (slip-and-fall liability) types of losses. Keeping good records of accidents and having the hotel’s management team review these regularly can help hotels identify dangerous exposures that can cause multiple incidents.”
Associate Vice President and Hospital Segment Leader
Hotels also are trying to reduce their risks by increasing rather than decreasing their points of contact with hotel guests. “Where there has been a move toward reducing human interaction at hotels (kiosks, check-in apps, electronic key cards sent to a guest’s cell phone), hotels are positioning staff interactions as their first line of defense in identifying unusual or questionable behavior,” says Young. “So much so that some hotels have moved toward increasing the human interactions and eliminating the cell phone key option.”
Another trend that’s influencing hotel operations is the emergence of food service within the hotel property. From the smaller chains to the larger, “everybody is getting into the food industry,” says Gene Adami, senior executive general adjuster for Engle Martin & Associates. That addition is affecting claims, he says. “It’s another step you have to take when you have a loss within the hotel.”
With guest numbers increasing and competition heating up, Young says hotels are doing more to attract business. “Gone are the lonely treadmill and bicycles of past fitness centers. With a focus on well-being, today’s well-equipped fitness centers feature pools with lap swim capability, spas and even in-room exercise equipment. Healthy food options, air purification and yoga spaces are also more common. It’s important that with these increased offerings, hotels have in place frequent and careful inspection processes to ensure that equipment is well maintained and any problems are quickly identified and corrected.”
Such enhancements also present exposures. “When a piece of workout equipment malfunctions, it can cause a serious and sometimes expensive injury,” Young comments.
An emerging trend in the hospitality industry is exposure to cyber risk. Although the industry is aware of the risk, Young says hotel managements generally lack a deep understanding of the threat. He says cyber breaches don’t belong exclusively to large corporations anymore and adds that with risk comes opportunity. “This has created a tremendous opportunity for agents and brokers to better educate their hotel clients on how to protect their operations, regardless of size, and consider affordable insurance products that can make all the difference to a business that suffers a serious data breach,” Young says.
The insurance market
Like the hotel market it serves, the hotel insurance space is crowded, says Brown. He says standard and excess and surplus markets are in tight competition for business. The reason: “With so many kinds of hotels (resort, limited service, budget, franchised), and significant differences in exposures (restaurants, night clubs, spas, day cares, water sports), the lines between standard and E&S are easily blurred,” Brown explains. “Not all hotels are created equal, but they are often underwritten as commodities.”
Coverage is tightening, depending on the hotel’s location and loss history. “For properties in Tier One wind locations, cost and terms have definitely tightened,” says Young. “Key coverages for resorts with extensive campuses or remote locations have seen extensions like coverage for plants, trees and shrubs, and terms regarding off-premises power are much more restrictive.”
In the wholesale market, capacity isn’t an issue, nor are carriers reducing coverage. Applebaum says, however, that coverage is expanding to better protect insureds. “We see more casualty carriers exiting this class of business or requiring five years of hard loss runs. It’s becoming more challenging to write new purchases without loss runs,” Applebaum says.
Capacity is still adequate on the retail side, Young says, but the marketplace is getting tough on quality and looking at loss control and risk management as well as at a property’s loss history. Limits also are tightening. “Where limits excess of the lead $25 million on an umbrella used to be easy to come by, the market now sees the $25 million as an active working layer, so fewer carriers are interested and there is real pressure on pricing. Claim values are higher than they have ever been.”
With so much competition and with claims on the rise, Young says the market is starting to make its demands known. “What we are seeing now is a marketplace that might be finally saying ‘enough is enough,’ with carriers demanding increased rates or leaving the market entirely,” he says. “There isn’t a program out there, be it MGA-run or a hotel-flagged program, that isn’t struggling to stay profitable.”
Still, carriers remain. Those that do are seeing what Adami says are fairly common losses. On the property side, he points to claims for water damage caused by sprinkler systems and broken pipes. “We do see roof leaks, but not as often as plumbing breaks. We have a lot of sprinkler head claims—I have one or two a year—where people hang their garments on the sprinkler head, which can cause a flood in the unit.”
In response to these claims, Adami says, hotels are providing guest education at check-in. From signage to front desk reminders, guests are being asked not to hang garments or other items from sprinkler heads.
“Carriers are becoming creative in offering more bells and whistles to cater to this class, from hotel crime coverage to guest property coverage.”
Element22 Insurance Services
Weather-related claims also tend to drive activity in the property line, says Brown. Wind, hail, and other weather events are common occurrences.
Still, the loss leader for hotels continues to be auto claims, says Young. “It’s hard to find monoline auto coverage, and carriers are including it with other lines, understanding that they’re likely to lose money on that line. Adverse loss history can affect an account’s pricing for auto.”
Another loss leader, and the most common cause of loss in the industry, is slip-and-fall incidents. Yet Young says it’s possible to reduce the losses. “Constant maintenance and attention to safety can help hotels prevent these. Keeping good records of accidents and having the hotel’s management team review these regularly can help hotels identify dangerous exposures that cause multiple incidents,” he says. Brown adds: “These incidents should be addressed quickly and defended aggressively, as that is the only way to maintain profitability on this line of coverage.”
Agent and broker advice
“Hotels must do a careful job of qualifying, hiring, training and supervising drivers,” says Young. “Incentivizing drivers and maintenance upkeep also help. Clear rules for shuttle vehicle use are important; drivers should insist on seatbelt use, and shuttles should never exceed passenger capacity. Guests should never be allowed to stand, and luggage should be stowed securely.”
Overall, insurers are improving their mitigation procedures, says Applebaum. “For instance, some carriers require that the insured has pest control in place. These requirements are forcing the insureds to better maintain the hotel to avoid claims,” he says.
Brown says agents should be taking advantage of hotel insurance specialists on the wholesale side to ensure that all client exposures are identified and adequately covered. Also, “agents, brokers and carriers should require an annual sprinkler flow test and inspection at each hotel property,” he adds.
Good risk management is important, says Adami. Agents need to make sure the property they’re writing is safe and professionally operated. “Any possibilities for subrogation need to be marked urgent at the beginning of a claim and followed up on strongly diligently.”
Agents and brokers can be the first line of defense for their hotel clients, says Young. Training clients goes a long way toward helping them understand the impact of any losses their hotel clients incur and allows agents to make sound risk management decisions.
Also, choosing specialty carriers makes the job much easier, says Applebaum. “It’s amazing how many situations I see where a generalist agent or broker insures a hotel and is missing key coverages that are specialized for the hotel/motel market. Both insureds and agents should vet their brokers to make sure they have experience in this class of business and that they have a pulse on the market and coverage offerings tailored to this class.”
For more information:
Element22 Insurance Services
Engle Martin & Associates
Southern Hospitality Underwriters
Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.