The Changing Face of the Hotel Umbrella Market

The tight insurance market without question has hit the hospitality industry, including the Excess/Umbrella space. In addition, COVID-19 has brought significant challenges for the hotel industry as it struggles to gain traction after being upended by the pandemic. We spoke with Sean Young, VP, Distinguished Hospitality Umbrella Product Manager, for some insight into the challenges of today’s Umbrella market and how our product is helping agents find a home for their insureds.

The Reasons Behind the Hard Market

“Many carriers have left the Hotel Umbrella market,” explained Sean, “with several programs no longer available and less opportunity to find insurers willing to write the business.” In addition, carriers are now putting up less limit and extending less capital than before. “It’s hard to find the same Umbrella limits that were once available,” said Sean.

There are several factors behind the tightening market, including:

• the influx of providers writing highly competitive coverage as they wanted to enter the space and later found the need to make adjustments;
• the consolidation and acquisitions of carriers which resulted in the reduction of markets;
• the frequency and severity of losses and subsequent nuclear verdicts; and
• underwriting unprofitability that no longer can be offset by carrier investment income due to low interest rates.

A Shift in Underlying GL Limits Required

Excess insurers are now beginning look to primary carriers offering General Liability coverage to write $2 million of underlying limits rather than the $1 million historically written over the last 30 years in addition to limiting their capacity in a tower.

Another market shift is reflected in the difficulty hotels in certain geographic locations are having in finding coverage today. “Operators in New York City and Las Vegas are two of the biggest markets where carriers no longer write Excess coverage for hotels. Distinguished continues to write in these territories putting together towers of up to $180 million,” Sean noted.

In addition, there is a great deal of pressure on rates, particularly in markets where carriers have retreated from writing coverage. “Many carriers are asking for large price increases,” explained Sean. “The Distinguished Hotel Umbrella Program, however, has fortunately not experienced quite the same rate pressure as other markets because of the tenure and success of our program and experience. Carriers rely on our exceptional underwriting acumen and are open to putting up more limits than the general market at more competitive pricing. Don’t get me wrong, there is still rate pressure. But not to the extent the overall market is seeing. We feel very good about our product.”

COVID and the Hotel Umbrella Market

The hotel industry was one of the first hit by the pandemic and it is among the most deeply impacted. There is significantly less business travel now, and more remote work being done with Zoom, Skype and Microsoft Teams having replaced out-of-town, face-to-face meetings and conferences. Tourism has come to a standstill. Some hotels have unfortunately closed while others continue to operate at limited capacity.

“As a result of COVID, hotel revenue is down amid an insurance climate that is experiencing higher rates. At the same time, employees have been furloughed, putting hotels at a greater risk for loss. You don’t have the same staff level to monitor safety and loss control measures. Additionally, capital expense is not being invested to keep properties upgraded as they would have been if they were operating normally,” said Sean. “In some ways, there is more risk for hotels that don’t operate at full capacity.” This dynamic adds to rate pressure as well as the need for hotels to maintain adequate Umbrella limits. To learn more about Distinguished Hotel Program and how we can help you place coverage for our insureds, please contact us.