Understanding Risks and Insurance Options to Minimize Impact on Revenue

By Jackie Collins Senior Director Real Estate & Hospitality Division, Arthur J. Gallagher | September 30, 2018

For the sixth consecutive year, business leaders worldwide ranked business interruption as the most important global risk in 2018, according to the Allianz Risk Barometer 2018 report. Losses from natural disasters and the increased volatility of weather, both of which can be contributing factors to business interruption, were among the business leaders' other significant concerns.

While Allianz gathers feedback from a variety of industries and businesses, business interruption is likely high on the list of concerns that hotel owners and managers face when considering how to keep their revenues steady. Simply put, if a hotel is not open and able to serve customers, it will not make money.

When considering insurance policies, business interruption is always a top priority for hotel owners and managers in identifying ways to protect revenue. Yet, it is hardly the only insurance that hotels need. Rather, it seems that hoteliers need to review every coverage under the sun: property insurance, general liability, liquor liability, crime, workers compensation, employment practices liability and cyber insurance, just to name a few.

At the end of the day, many of the risks that a hotel may face are based on the individual property and where the establishment is located. The following outlines some of the main risks that hotels should be prepared for, as well as how insurance can often steady a hotel's revenue in the aftermath of an event.

Natural Disasters' Impact on Hotels

2017 will go down as the most costly year for natural disasters in insurance history, with an estimated $145 billion of "HIM" (Harvey, Irma and Maria) driven claims severely impacting hotel operations in Florida, Puerto Rico and the Caribbean. Not only were operators hit by direct physical damage, but in many cases their business interruption claims are ongoing due to lack of materials, labor, delays in permitting and other circumstances out of the insured's control.

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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.