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Why the Hospitality Industry’s Revival Creates New Challenges in 2022

As hotels and motels reopen, the industry is set to feel the ramifications from the past years of vacancies and staffing shortages.
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why the hospitality industry’s revival creates new challenges in 2022

The COVID-19 pandemic decimated the hospitality industry in the U.S. As restrictions were put in place, and even after they were lifted, many hotels and motels were forced to close or reduce their operations to a minimum. While this took an enormous toll on the hospitality industry, a knock-on effect was felt by carriers offering insurance coverage for hotels. 

“When the coronavirus pandemic started in early 2020 until mid-2021, many insurance carriers took a serious look at their hotel and motel hospitality book and made the decision to amend their marketing and underwriting practices," says Greg Wetherwax, commercial lines product and profitability consulting underwriter, Westfield. “This ranged from ceasing underwriting of new accounts to tightening up their underwriting guidelines, reducing their capacity, amending terms and conditions, and even non-renewing their entire book."

However, as threats from COVID-19 variants appear to be waning, the hospitality industry is looking toward a revival as more and more people are looking to travel and stay in hotels and motels in 2022.

The outlook for the year ahead is positive, with hotel occupancy rates and revenue expected to approach 2019 levels, according to the 2022 State of the Hotel Industry Report produced by the American Hotel & Lodging Association (AHLA).

“Travel, as well as extended stays and remote work in hotels, is on the rise," says John Welty, president, SUITELIFE Underwriting Managers. “We expect travel levels this summer to exceed what they were the past two summers."

Getting back to some sort of normality presents many reasons for the hospitality industry to feel hopeful about the future. But it could also create a whole new set of challenges—specifically, the Great Resignation.

“With less staff available to perform regular duties, hoteliers are finding their employees stretched thin and, in some cases, may be seeing a higher rate of burnout," Welty says. “Similarly, high staff turnover can leave hotels open to risk as employees may not be able to receive proper training."

In general, carriers experienced a reduced number of claims during 2020. “There was a positive expense impact on the insurance industry with lower claim expenses and fewer paid losses due to fewer general liability, workers compensation and crime insurance claims," Wetherwax says. “Less foot traffic, fewer hotel amenities, reduced conventions, and less food service has been a major contributor of this positive impact."

Yet, as hotels and motels reopen, the industry is set to feel the ramifications from the past number of years when they remained empty and had little to no staff or guests.

“Some rooms sat vacant for a significant amount of time and, as a result, mold claims may increase as any water damage may have gone unnoticed," says Sarah Wirtz, area senior vice president, casualty manager, national environmental practice leader, Risk Placement Services Inc. “Some insurance carriers that write site pollution on hotels have elected to use a per door mold deductible to help mitigate their losses."

In addition, some hotels will face exposure from “pool chemicals that are not stored or used properly, combined with poor ventilation," which “could result in bodily injury claims," Wirtz says. 

Effects from the economic slowdown in the U.S. are also expected to be felt by hoteliers as “supply chain issues, inflation and other factors are causing a large increase in repair and rebuild costs," Welty says. “In the event of a claim, hoteliers will want to be sure their property was recently assessed and adequately valued to make sure they have adequate coverage for repairs or to rebuild."

On the positive side, “there has already been a slow and steady increase to back to normal," Wetherwax says. “The hotel industry has been able to adapt to this progression in terms of managing increased exposures, hence allowing the insurance carriers to manage the increase in claim activity as well."

Olivia Overman is IA content editor.