Unpredictable Weather: Understanding the Risk and Protecting Your Property

By Fran Sarmiento Executive Vice President, Venture Insurance Programs | April 28, 2013

Ocean or bay view? At some hotels and resorts, it's a common enough question. But what if they are one and the same?

Even before "Superstorm" Sandy left the Northeast reeling, rising sea levels were altering the geographic outline of our coast. Tornadoes, a common threat in the Midwest, have wreaked havoc in more parts of the country, and wildfires, mudslides, dust storms and drought have devastated parts of the West and Southwest.

While the hotel industry has come a long way in preparing for the disasters that weather can bring, today's new unpredictable weather has become a critical issue for hotels and resorts. Severe weather rarely threatens the existence of a business, but it can jeopardize growth and cause volatility in earnings.

You can take steps to protect your property and your guests from this ever-changing climate. Specific risk management practices and disaster preparedness plans will help reduce or eliminate the potential loss. But you also must have adequate insurance, both property insurance with the dollar limits you need, as well as business interruption coverage with protection from loss of income.

Insurance Rates and Availability

How do the recent changes in weather patterns affect your ability to get adequate property insurance? Insurance rates for commercial property coverage are likely to rise throughout 2013 due to Superstorm Sandy and several other large catastrophe losses. These increases will vary depending on location.
Deductibles are increasing as well, not only for wind and flood exposures, but also for all other perils such as fire, theft and vandalism. In fact, it is not uncommon to see property deductibles on larger hotels increasing to between $10,000 and $25,000.

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.