By John Davies ACII – Certified Insurance and Managing Director, Hotel Risk Management
Much has already been written about insurance issues related to the COVID-19 virus. With many hotels closed around the world, it is inevitable that hotel owners / investors will look to their insurance policies for compensation under the business interruption section.
But, unfortunately, for almost all hotels, it’s likely that their business interruption wording won’t offer any protection to hotel owners or operators. There may be a few policies where the wording will allow a claim, but very few of them and if coverage exists for a particular hotel or group it may be under a business interruption extension worded so imprecise by the insurance company, thus giving the policy-holders hope for a successful claim.
The point is, if the majority of insurance contracts issued for hotels offered COVID-19 protection for lost earnings, then most of the international insurance industry would be bankrupt. There is no doubt that the impact on hotel trade and profitability is hit hard worldwide and high-end luxury hotels in major European cities like Berlin, Rome, Paris, Madrid, London and elsewhere are particularly hard hit. .
Also, the revenue collection projections are not good for maybe 18/24 months. How can they be with different countries slowly emerging from lockdown, with air travel reduced to a fraction of normal and social distancing rules affecting the practicality of hosting conferences, weddings and other profitable hotel business? ? Can someone explain to owners how social distancing will work effectively in a hotel elevator or restaurant if the hope is to achieve high occupancy?
Luxury hotels may well have been the first companies to be affected by the revenue-affecting virus and it is likely that the same hotels will be the last to see a recovery to 2019 levels. Aside from the many insurance questions raised by hotel owners, let’s focus on an issue that may be giving some owners some very useful premium refunds right now.
A large city or resort hotel, with perhaps more than $ 30 million or more in revenue, is likely to pay more than $ 250 / 300,000 in insurance each year, which will be a mix. different policies with an accounting for interruption of goods / activity and civil liability. for the most part of the cost.
But many hotels are closed. They have no guests, few employees, and little or no income. The risks for insurers have therefore been reduced. Yes, hotel property insurance should be continued, but there are two components of the premiums paid by hotels where the risks to insurers have decreased significantly.
1. Business interruption (BI)
As high-end hotels are often fully protected by automatic sprinkling, the BI risk for insurers is generally limited to the first 12/18 months following a major disaster. With one hotel closed and the intention to reopen later in the year – perhaps with reduced staff and fewer rooms available – the risk to insurers over the next 12/18 months is very low.
2. Third parties / Public responsibility
Without guests, there is virtually no risk. The gradual resumption of activity over a year or two presents a low risk of loss compared to full operation as in 2019. For hotels renewing their insurance policies in April or May, the insurance companies have accepted the risk reduction and renewal premiums on property insurance. decreased due to lower BI projections. Ditto for liability. Hotels that renewed their insurance in April or are about to do so will mostly see premium reductions, unless the hotels use the insurance offered by brand managers on HMA terms.
Some of the international brands that run homeowner’s insurance programs have suffered badly in recent years from riot, flood, hurricane and other peril claims, and these brands are seeing their premiums rise as insurers try. to recover past losses. As always, owners pay the highest costs, not managers. Unfortunately, this means that high-quality hotels in low-risk territories have to pay higher premiums due to claims from hotels insured in high-risk areas by the same brand managers.
For hotels that renewed all insurance policies in December of last year or January / February / March of this year – before the virus had a serious impact – the premiums paid would have reflected normal business projections . For homeowners whose policies were renewed just before the virus closed, the premium paid now seems and is far too high. These premiums reflected future risks for insurers assessed at that time. These risks have decreased considerably and are likely to remain low for the remainder of the insurance period.
Based on this, it is reasonable to expect insurance companies to adjust premiums now to reflect the new reality. The premium savings could be substantial. The discounts could exceed 20,000 € per hotel and be reinforced by the reimbursement of premiums on anti-terrorism devices such as Gareat in France, Concorcio in Spain as well as premium taxes. In some countries, such as the Netherlands and Italy, taxes can exceed 20% of the premiums.
Our advice is to approach your insurance brokers or anyone who has arranged your insurance for you and request that the policy premiums be revised immediately to reflect the dramatic changes in current and expected trading. Some policies will have a possibility of premium adjustment at the end of the policy year and this can be advanced and dealt with now.
There are a number of major hotel brands that place insurance under the HMA and discuss these reimbursements with their insurers on behalf of the owners. Many insurance brokers do the same on behalf of their clients. Promising signs show that large insurers understand the issues and seek to be flexible and support policyholders. Each hotel owner / investor should investigate the position with their own insurance and take action to obtain premium recovery when warranted.
This article has been provided by Global Asset Solutions and republished with permission. To read the source version, including the source references, please CLICK HERE.