Originally published in AAHOA Lodging Business, February 2009

Insuring a Sound Investment

Evaluating hotel insurance coverage for 2009.
Interviews by Dan Marcec

Looking further into the new year, hoteliers need to be aware of the economic conditions affecting the ups and downs of their ROI. At the same time, however, they should not forget to reevaluate their insurance policies just like any other year. The appropriate tendency is for a wise businessperson to counterbalance declining market fundamentals with cutting costs; however, the price of underinsuring can prove much more costly in the case the unexpected and unfortunate occurs. AAHOA Lodging Business interviewed three hospitality insurance agents for their perspectives on what to expect and what they suggest in 2009.

ALB: What are your predictions for the hospitality insurance market in 2009?

Deepak Poplai, hospitality insurance specialist with White Insurance Group: As we all know, the insurance industry has been a soft market for the past few years; yet, the economic situation should not soften it further. According to a new poll by Insurance Journal, 73 percent of agents predict prices will firm as early as the third to fourth quarter of 2009 or the early part of 2010.

Michael “Mick” Cottom, -president of RCI Insurance, a hospitality insurance specialist: We should see upward pressure on property premiums, but on a selective basis depending on the property, sector and location. 2008 was a horrible year from a loss standpoint for most hospitality writers. With the losses experienced in 2008, along with lower interest rates on surplus and a volatile stock market, insurers will be watching rates very closely. Liability rates should remain fairly stable.
     For those of us that have been involved in this industry for very long, the best advice is to stay flexible. Hoteliers need to be dealing with an agent/broker that knows the industry and that they can trust. Talk to other hoteliers and check out references.

Ron Thomas, vice president and COO of United Insurance Agencies, Inc.: I think the actual economy and the overall health of the financial business sector in the U.S. will play an important role in the direction of the insurance industry. Of course, catastrophic events will also have a bearing on its direction. In 25 years of insuring hotels I have seen many different markets, and we always seem to solve the problems of the day the best we can and continue to move forward. With that being said, I think the future looks bright.

ALB: What are your business plans for 2009? In what ways have -insurance companies altered their approaches for the coming year?

Poplai: 2009 will be a challenging year for new business, but we look forward to developing new relationships. For new customer solicitation, our approach is twofold: bringing in new clients through meeting people in our community, as well as asking our established clients to refer their friends and family to a company they trust.
     When the investment market is not performing, companies turn to their underwriting philosophies. What this means is an increase in insurance companies accepting “above average” risk and a decrease in accepting marginal risk accounts. One example is in the reluctance of companies to write exterior corridor properties due to liability exposure.

Cottom: We’ve seen a number of companies enter the market that have already left. More writers are targeting specific niches within the marketplace, with underwriting requirements tightening over the past 6 months.

Thomas: We consider every customer’s needs and do the best to fulfill them in the most cost-effective way available. We’re going to run our business as we have in the past and adjust when needed.
     We have many national and regional companies that provide our agency with specific products for the hospitality industry. We have seen recently more stringent underwriting and more requests for information about our customers for insurance companies to complete the due diligence and underwriting process.

ALB: What can hoteliers do to -manage their insurance policies most adequately? What coverage is most often overlooked?

Poplai: Insurance companies look at both the frequency and severity of the claim as part of the underwriting process. We try to educate our clients on claim filing and choosing the correct deductible. Keeping your claim frequency low and a higher deductible is one way to reduce your premiums.
     In addition, most companies perform Loss Control Surveys. When safety recommendations are issued, hoteliers should always comply promptly. It is imperative that hoteliers understand that a survey is for safety as well as profitability.
     One of the most overlooked areas of coverage for hoteliers is Employee Practice Liability Insurance. This coverage is important for several reasons, including an increase in sexual harassment and wrongful termination lawsuits. Also, some franchises are requiring this coverage.

Cottom: The most cost-effective way to manage your insurance costs starts with proper employee selection and training. The property needs to have an effective risk management program that all employees are aware of and adhere to. Additionally, you need to deal with an agent that specializes in hotel insurance. Some hoteliers still confuse the market value with replacement cost or rebuilding costs.
     With the broadening of the Americans with Disabilities Act (ADA) this year, it is even more important to consider Employment Practice Liability Insurance coverage. The cost of defending a case can easily run to more than $100,000.
     Furthermore, insurance to value is one of the most overlooked items in property coverage. With construction costs escalating nearly 25 percent during the past few years, renewing your coverage “as expiring” can be a very costly mistake. Most policies today are written with a co-insurance provision that requires you to carry a certain percentage of rebuilding costs or you only receive a portion of a claim settlement.

Thomas: Hoteliers should understand their insurance coverage and how it will affect their individual business in the event of a partial or complete loss of their property. They need to understand that all insurance policies are not the same and the lowest price is usually not the best. Many times you sacrifice the coverage you need for only 10 percent to 5 percent of your total premium. Look to an insurance agent that is a specialist in providing insurance for hoteliers that can guide you and offer you what you need.
     I believe that all hoteliers should purchase Employment Practices Liability Coverage. This will protect them from loss such as discrimination, harassment and many employment related issues.