default logo

What hotels should know about multiple layers of insurance

As the hotel sector continues to claw its way out of the economic disasters of 2020, ensuring all the risks the industry confronts becomes more complex and costly. That’s a significant issue when insurance is the third-highest non-capital expense for a hotel, after wages and taxes.

It is partially due to the current status of the insurance industry, which has been the most difficult in the previous two decades. Recent high-profile losses (think natural catastrophes and active shooter decisions) have made carriers wary of taking on other risks. These losses have put a strain on their ability (or available funds) to cover huge risks. Many insurers have withdrawn totally from hospitality—and many of those that remain find it simpler just to say “no” than to renew policies, even with 50% rate hikes.

Hotels operating in rural regions and high-protection fire zones are particularly impacted. Operators must be more astute in their risk management. They must be prepared long before renewal with an excellent narrative to share with carriers. It is critical to understand how the pandemic was managed. A spotless loss history is vital, sign up for bridge payday.

Developing Creativity

However, there is something else they should be aware of: For so long, the insurance market has been sluggish, and carrier capacity has been abundant and inexpensive that many insurance brokers are at a loss for how to proceed. They’re slamming their heads against the wall in an attempt to construct a single-carrier mouse trap. However, they need to be inventive in their approach to capturing them.

Today’s times need innovative, multicarrier solutions. Layering is a practice that is not new but is likely foreign to many brokers. More prominent hotel firms have utilized it for years to cover risks usually not covered by single carriers. However, brokers without prior knowledge or an extensive network of insurers and reinsurers may fail to complete the transaction.

Layering is one strategy many carriers use to circumvent the insurance industry’s limited capacity. Consider excess liability insurance plans, which provide coverage for damages that exceed the basic liability policy’s limitations. Even for smaller accounts with lesser limits, a single insurer is unlikely to cover the whole risk exposure, even today. The broker must seek out insurers and reinsurers to cover the risk on multiple levels. When combined, they form a “tower” of coverage with the primary range at the base and each layer above.

Distributing risk across many insurers enables appropriate coverage. Additionally, the way it works is that the greater the layer of coverage the insurer has, the less exposure the insurer has. This makes it simpler to identify carriers willing to participate, resulting in lower coverage costs.

Management of Claims

The primary carrier takes the lead regarding claims handling and terms. Generally, the primary is responsible for claims management, and insurers covering the layers adhere to the primary’s contract terms and conditions, exclusions, and policy definitions.

Quota shares are another multicarrier method for obtaining insurance under challenging markets. These are consolidated plans with numerous insurers that share premiums and losses based on a predetermined proportion. Insurance companies may be interested in participating because, although profits may be lower, it is an excellent method to free up capacity for new policy writing.

Layered insurance and quota shares can be challenging to set up and maintain and are methods that many brokers may struggle with. However, hotel operators of all sizes need to rely on a broker who is innovative and has access to a range of insurance and risk management solutions to get coverage at all—let alone at a reasonable rate.