Virtus Blog

Check In with Your Hospitality Insurance: How To Remain Resilient and Strengthen Profitability

Analysts and economists agree thatAmerican’s appetite for travel remains strong with no signs of slowing down as we near summer. Yet the hospitality industry has more challenges than ever as natural disasters and cyber attacks are on the rise, and economic uncertainty builds. This makes your insurance programs key to resilience in the months ahead.

Hospitality legal expert David Durell joined the Kemmons Wilson Insurance Team at Virtus to share insights and insider knowledge about how hotels and resorts can remain strong in an increasingly complex and ever-changing market. Below are some key takeaways from the panel.

Insurance is Always Last

Far too often, insurance advisors aren’t adequately consulted during a transaction, whether buying/selling a property, finalizing construction, or executing a franchise agreement. Historically, operators include their brokers days before the close date despite the weeks, sometimes months, of red lines and negotiations between legal, operations and finance teams. The problem: it can be unclear who bears the risk of loss and how insurance will respond.

> The Solution: Insurance as a Strategy

As our industry and benefits expert John Eichmann says, “All roads lead to insurance,” and it intersects every aspect of transactional contracts including loans, franchise agreements, and management agreements. These contracts specify indemnity, insurance requirements, and other contractual risk transfer; so, your insurance advisor should be involved in tandem with legal, operations and finance teams to analyze the risk tolerance between all parties involved. This breeds transparency and allows the insurance firm to structure the best program for all.

The Hard Market is Driving Creativity
From increased wildfires in California and strengthened hurricanes in Florida to intensified tornadoes in the Midwest and South, natural disasters continue to negatively impact underwriting performance year over year. Compound this with rising inflation, the higher cost of construction, and labor shortages overall, it’s no surprise the cost of insurance coverage and claims are rising.

But it’s not all gloom and doom. The most sophisticated advisors are taking advantage of these times, structuring sophisticated, sometimes unconventional programs that help hotels and resorts remain resilient while adding value to the bottom line. Some examples include a structured form of self-insurance, whether it’s a captive or risk retention program, or a shared-limits program structure that aggregates scale across multiple members.

Employee Benefits Are a Recruitment Strategy
Travel is back. Performance in 2022 exceeded 2019, which until now, was the benchmark year to determine post-pandemic recovery. Despite this, nearly 80 percent of hotels and resorts in the U.S. are experiencing staffing issues, and of those, 20 percent are severely understaffed (albeit a few years ago, these numbers were 96 percent and close to 65 percent, respectively).

Employee Benefits area competitive advantage, and brokers play a part in this. It’s true we work for financial security, but we’re also in it for health benefits. Brokers should work collaboratively with their clients to make the benefits package easy to consume while clearly listing out-of-pocket fees, and then remind employees of their benefits with clear, consistent and concise communication.

The Reality Behind the Rising Cost of Benefits
Unsurprisingly, the cost of healthcare coverage and benefits packages are rising but it’s not simply due to inflation. Provider networks negotiate 3-year contracts with carriers, and many were negotiated before COVID-19. As these contracts come due for renegotiation, it’s at a time when most healthcare networks continue to suffer from post-pandemic staffing issues.

Moreover, drug manufactures are releasing new, more expensive medications, such as gene therapy drugs which cost nearly $2 million dollars. Many carriers we work with had the foresight to these innovative treatments; so, charging 99 cents per employee per month to build a war chest if you will reduce the expense of these therapies. The good news, though, is that as more treatments like gene therapy become readily available, the cost of other major medications like insulin are on the decline.

In conclusion, our panelists agree that the one of the best ways to combat rising costs, labor shortages and other challenges brought on by the hard market is to treat your insurance broker as one of your business advisors. They are an additional resource to help you navigate an increasingly complex economy that just like travel, has no signs of slowing down.


Watch the full panel discussion here: