Todd E. Soloway

In recent years, the rapid increase in the costs of property and liability insurance has become an existential issue for the hospitality industry. Environmental, political and social changes have combined to wreak havoc on the pricing—and in some cases, even the availability—of insurance coverage, forcing hoteliers to make difficult choices regarding both potential and ongoing projects.

The numbers are staggering. A 2023 CBRE report found that, between 2015 and 2021, while total operating expenses fell by 6.5%, the cost of insurance increased by 5.0%. By 2023, insurance costs had spiked 19.5% year-over-year, and total operating revenues had not grown sufficiently to cover the increase, leading to a 0.2% decline in EBITDA from 2022 to 2023.

This article explores strategies hotel industry stakeholders should consider to address the rising cost of insurance, including to place bespoke coverage that includes the coverages the hotel needs and, just as critically, excludes what it does not.

Diagnosing the Problem

Several factors are impacting the domestic insurance market. Perhaps most obviously, the escalation in natural disasters including hurricanes, tornadoes, flash flooding, and wildfires in coastal regions and in certain markets in the central of the country have caused carriers to increase premiums—and in some regions, to withdraw their coverage offerings entirely.

The aftereffects of the pandemic on other related industries, such as supply chain disruption and increasing costs of construction, also continue to affect property insurance pricing for hotel properties. Higher costs of construction lead to both higher costs to repair or replace damaged property, and higher building valuations for existing structures, which in turn increases policy premiums.

Governmental policymaking and economic factors also impact the price and availability of insurance. Inflation and tariffs on building supplies further fuel spiking construction costs. Liquor liability coverage pricing for hotels with food and beverage outlets has been altered both by stricter “dram shop” laws in some jurisdictions and by insurers paying close attention to brand social media posts focusing on nightlife events or alcohol when evaluating potential risk. Additionally, insurance regulations – which vary by state – have significantly increased the cost of doing business for insurers operating in certain states, including California.

Coverage Offerings for the Hospitality Industry

Hotels typically obtain both first-party property insurance for damage to their premises and personal property, and third-party liability insurance, typically referred to as Commercial General Liability (CGL) coverage, to protect against liability from third parties who may sue the business.

Businesses usually obtain both property and CGL coverage in the standard (or “admitted”) market, often through an insurance agent or broker. Because of legislation prohibiting most federal regulation of insurance, each state is responsible for the regulation of standard insurers operating within that state. Typically, states require that these insurers, among other things, satisfy certain financial rating benchmarks to hedge against insolvency and further set limits as to what insurers can charge and the risks they can and cannot cover.

An alternative to standard insurers is excess or surplus lines (“E&S”) carriers, which operate outside of the standard market and thus present a different risk-reward profile to policyholders. These insurers—such as Lloyd’s of London, the E&S market leader – operate outside state licensure schemes, and therefore are nimbler with their coverage offerings and offer types of coverage unavailable on the standard market.

While states still impose certain limitations on E&S carriers, which can include requiring financial benchmarks be met to sell policies and restricting the types of coverage that may be offered (or even requiring brokers to try several standard carriers before resorting to an E&S carrier), coverage through E&S carriers offers the opportunity to include unusual risks based on the type of business or in instances where an individual or commercial policyholder cannot obtain coverage in the amount needed (for example, in New York E&S coverage is available for flood insurance in excess of the amount provided by the Federal Flood Program).

While a policyholder must be willing to accept the risk of an E&S carrier’s potential insolvency, the lack of state regulation allows E&S carriers to craft bespoke solutions for businesses while still offering comprehensive coverage.

Strategies To Combat the Mounting Cost of Insurance

To achieve the best outcomes in this new reality, hotel owners and operators need to rethink their risk management strategies from the ground up. This includes:

Start your insurance placement early. Waiting until your existing policies are 30-90 days away from expiration decreases your bargaining power and your time to evaluate various options. Insurance can no longer be treated as an annual checklist item; strategic planning and hands-on involvement in the selection of coverage can mitigate supply-side issues.

Leverage your professionals. Many business owners think that their broker is in the best position to find the “right” coverage for their business. But a trusted broker should only be the first step in the procurement process, and it is critical to understand the different roles served by brokers and insurance coverage counsel.
 
A broker is best positioned to search the market and provide options, but consulting your counsel can add value at every stage of an insurance policy’s life cycle. Before renewal, coverage counsel can review your existing coverage to look for gaps in coverage and recommend how to fix them when it’s time to renew.

During the renewal or procurement process, they can assist in the negotiations by requesting a specimen form or draft endorsements from the insurer and negotiating revisions to off-the-shelf forms. Once a claim is made, coverage counsel can negotiate with the insurer or the claims adjuster to maximize recovery and identify additional buckets of funds available to policyholders under standard commercial policies, such as claim preparation costs.

Consider E&S carriers to provide bespoke coverage for your business. Ensuring you have the appropriate coverage for your hotel requires looking at both what coverages you need—and, just as critically, what you don’t.

With the assistance of trusted professionals, carefully review your policy to find standard terms that are inapplicable to your circumstances and ensure you are not paying for unneeded coverage. They can also assist with crafting bespoke coverage by combining standard policies with an E&S policy to cover a particular risk, or if you cannot find the correct amount of property or liability coverage you need in the standard market, make sure that the extra money you spend on a custom policy provides the most policyholder-friendly terms possible.

Consider group insurance options. If you have an HMA or franchise agreement with a large brand, ask your manager about the possibility of adding your hotel as an additional insured to the brand’s corporate insurance program. This may also be possible if you use a third-party manager with a large number of properties under their management that procures insurance as a group for those properties.

Although joining a larger program may come at the cost of some control over the claims process and less flexibility on policy terms, economies of scale may make it more affordable and worth those sacrifices.

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This article first appeared in the August 19, 2025, edition of the “New York Law Journal” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.