The income and expenses data collected by STR, CoStar’s hotel analytics company, shows a steep acceleration in insurance cost per available room over the past few years. STR collects detailed operating data from over 5,500 hotels and can show line-item cost developments over time. As inflation has increased over the past two years, so have fixed and variable costs across many line items.
The Uniform Systems of Accounts for the Lodging Industry, 11th edition, or USALI, determines that the insurance line item includes the cost for building and contents insurance and general insurance. Payroll-related insurance is included in employee benefits line items by department.
According to The Council of Insurance Agents & Brokers’ Commercial Property/Casualty Market Report, insurance premiums increased in fourth quarter 2022 for the 21st consecutive quarter. Premiums for commercial properties overall increased 16% last quarter, following an 11.2% increase in the third quarter of 2022. The range for commercial property rate increases was wide, from 45.4% on the high end to -15% on the low end.
According to the Council of Insurance Agents and Brokers members, inflation and a corresponding increase in valuations and replacement costs drove part of the increase. The other main driver for premium increases was the impact of natural disasters. Seventy-one percent of respondents saw an increase in claims in the fourth quarter, with many mentioning damage sustained from Hurricanes Ian and Nicole as the reason for the increase in claims.
Members reported that, in general, their insurance lines of business showed some premium decrease or reported no premium change compared to the third quarter. The exception was commercial property premiums. All respondents reported an increase for that category, with the increase ranging between 10% and 19% for most of them.
Looking ahead, further steep increases in insurance rates for hotels are likely. In areas where there can be too much water, resulting in damage from hurricanes or tropical storms, or too little water, causing elevated fire risk premiums, insurance rates could increase even more. Hotel owners may also face higher deductibles and other restrictions around their coverage as severe weather events affect operations and increase insurance payouts.