Insurance costs for hotels seemed to have been stabilizing before historic disasters erupted in the form of wildfires in Los Angeles and unprecedented storms in North Carolina and elsewhere. Now the outlook is less clear, according to operators and analysts.
Hotels, however, can mitigate future increases to insurance costs in multiple ways.
Charlotte Kang, managing director and national practice lead at JLL's Hotels & Hospitality and Value and Risk Advisory, said that in recent years, hotel insurance costs have generally trended upward, with notable variations across different markets. Citing data from CoStar, she said nearly all of the top 25 U.S. markets experienced increases in insurance costs from 2021 to 2023.
Some of the markets with the highest absolute insurance costs didn't necessarily see the largest percentage increases, Kang said. For instance, Oahu, Hawaii; Tampa, Florida; and Orange County, California, despite their high costs per available room, ranked 21st, eighth, and 20th, respectively, in terms of percentage change during this period.
This data suggests a complex landscape where absolute costs don’t always correlate with the rate of increase, highlighting the importance of considering both metrics when analyzing insurance cost trends in the industry, she said.
While it has been a tough insurance market for the past three years, a moderation in property insurance rates began last fall, said David Rochefort, senior vice president of asset management for KWC Management.
When there is a catastrophe somewhere in the country, there's often an expectation of soaring insurance rates. What actually happens, though, is the reinsurance business underwrites risk globally and that system spreads the risk out, Rochefort said. Insurance increases have been more moderate worldwide, easing pressures domestically.
Still, insurance costs in the U.S. are 70% higher than pre-pandemic, and the market has “hardened” with fewer companies willing to provide it “or putting us through our paces a little more," he said.
Every operator’s situation is different, Rochefort said. For a smaller owner with only coastal assets in California, the outlook might be different.
“Those of us who think pretty big can spread risk through the portfolio and feel good about the long term,” Rochefort said. “We have the capital to rebuild and reopen and have the patience because it can take up to two years to get insurance payments."
Agnelo Fernandes, CEO of Cote Hospitality, said the company has seen double-digit percentage increases in property insurance premiums across multiple markets, with particularly steep hikes in high-risk areas such as California and Florida. Some properties have experienced 25% to 50% increases in premiums, and in certain cases, insurers have reduced coverage limits or even withdrawn from the market, he said.
Luxury resorts, historic properties and beachfront hotels have been the most affected as replacement costs and risk exposure are higher, Fernandes said. Even in lower-risk locations, insurers are raising rates to offset broader climate-related claims, meaning no property is completely insulated from cost increases.
Brandon Hatfield, chief investment officer for Valor Hospitality Partners, said that late in 2024 and early in 2025, rate increases were starting to stabilize “but now with the wildfires, the markets are still in discovery waiting on commercial losses from the fires.”
Insurance carriers are exiting some hospitality markets, Hatfield said. Hospitality “has limited carrier appetite and the carriers open to it are very specific on the types of hotels they will insure.”
In fact, according to Nicholas Graf, associate dean of the NYU SPS Tisch Center for Hospitality, a number of hotel projects in Florida have been scrapped because of the anticipation of increased insurance costs. Some had already started construction. The increases result from a combination of insurance and higher interest rates, as well as overall cost increases.
Mitigating expenditures
There are strategies that can control costs, according to operators, with the gold standard being preparedness.
“You need to have strong standard operating procedures, and work with a broker productively," Rochefort said.
Just last year, he said KWC switched from relying on the insurance policies of its management companies to securing a single policy for all of its properties, resulting in a 15% year over year decrease. With this move, Rochefort said, “we can determine our own risk and generally shift risk for cash.”
In addition, rates can and should be adjustable during the year depending on circumstances, he said. While hotels mostly pay premiums on an annual contract, it is generally possible to get a pro-rated return in some cases — such as when a portfolio is expanded.
Improvements to protections, a business continuity plan and appropriate construction projects are always helpful, said Ryan Napier, senior vice president-facilities, technology and risk management for Crestline Hotels & Resorts.
However, he said, overall costs are largely being driven by geographically based exposure such as wind, storms and earthquakes.
“Having a clean loss history and best in class internal controls are the best negotiating tools to bring to the table," Napier said.
There are always going to be insurers who can offer better rates, but that does not always equate to better coverage, more stability and meaningful capacity, he said. Balancing elements such as terms and conditions, services being provided and the overall cost are critical to building a successful program.
“We have developed strong risk management practices and loss control programs with the guidance of the carriers,” Hatfield said.
He added that the company has quarterly calls with carriers and brokers on claim reviews to make sure claims are closed out, correct and addressed in a timely fashion.
Hotels should keep preventative maintenance programs on all systems to ensure that losses do not occur from lack of previous maintenance, Hatfield said. Also, these costs can be minimized using superior construction materials recommended for the geography and type of hotel.
“We see the most impact in exterior corridors, properties that are more than 20 years old, and economy and midscale hotels,” he said.
To mitigate rising insurance costs, Kang said properties should consider enhancing their risk management strategies, exploring alternative insurance providers and implementing cost-saving initiatives in other operational areas. These efforts can potentially offset increases, leading to improved cash flows and, consequently, enhanced hotel values, assuming all other factors remain constant.
Rochefort said his advice is to “own your own insurance and find a good broker or consultant; a good one can really make or break your financial position.”
Other productive options are structural, he said. Hotels can improve their plumbing and electrical systems to avoid fires. In places such as Florida, his company is coming up with ideas such as storm walls rather than just setting up sand bags.
“You just need to make insurance companies more comfortable with the risk," he said.
Mitigating rising costs requires a mix of proactive planning, strong partnerships and ongoing innovation, Fernandes said.
"Our industry has always adapted — and by focusing on risk prevention, operational resilience and smart financial strategies, hotels can better manage the impact of rising premiums," he said.
International insurers may be an option for larger portfolios with global risk exposure, Fernandes said. In addition, some hotels are considering parametric insurance, which pays out based on specific weather conditions — such as wind speed in hurricanes — rather than traditional claims.
Graf doesn’t see much that can be done to reduce insurance costs. He said some properties have built retaining walls just to comply with insurance company requests.
“It all boils down to economics. It’s what makes sense economically," Graf said.
The outlook
Looking ahead to the NYU Hospitality Investment Conference in June, Graf said he believes many attendees “won’t have a clue” about how to proceed as far as expenditures. He said the brand CEOs will most likely be optimistic as they look at the situation from “a high altitude,” but when it comes to investments, operators are worried.
“They may be bullish in the long term but are not sure about the short and medium terms," he said.
Insurance rate increases will “absolutely” have an impact on future development, Napier said. There is always a level of unpredictability in the market, as so much of the outcome is predicated on catastrophic events or lack thereof.
Rising insurance costs are already shaping hotel investment development in several ways including: hesitation to build in high-risk areas; shifting to resilient design; seeing property valuations affected; and higher room rates, Fernandes said.
Insurance costs could potentially influence development decisions, Kang said, with developers possibly putting in more due-diligence efforts in underwriting when investing in areas with higher insurance costs or greater risk exposure.
In the short term, premiums will remain high, particularly in disaster prone areas, Fernandes said. For the mid-term, some stabilization is possible with more competition among insurers, risk mitigation efforts and government-based programs.
"Hotels that invest in risk mitigation, alternative coverage strategies and strong financial planning will be best positioned for the future," Fernandes said.