NATIONAL REPORT— Two unrelated events— one in 2001, the other in 2005, and both powerful— shook up the insurance practice affecting hotels and resorts like nothing else in the past 15 years. The two events shook up the rest of U.S. society as well, not to mention the insurance industry generally. They redefined how hotels think about the insurance coverage they need and their impact is still being felt today. The first event was the terrorist attacks of Sept 11, 2001. In that day’s aftermath, the lodging and general real estate industry’s need for terrorism insurance protection led to the passage by Congress of the Terrorism Risk Insurance Act (TRA). The second event was Hurricane Katrina, which struck in August of 2005 and was the most destructive in a series of tropical storms that battered low lying coastal areas in the past few years. The intention of TRIA was to take the burden off insurance companies in providing coverage to hotels and other businesses. The bill allowed the Federal government to cover 90% of the cost of claims and up to $100 billion per year over three years if terrorism-related insurance losses exceeded preset limits. TRIA was extended in 2005 for two years and expires at the end of this year. “The hotel industry doesn’t have an issue with hotels paying for coverage, only that the coverage be both affordable and available, ” noted IHG’s president of the Americas, Stevan Porter, who also is chairman of the American Hotel & Lodging Association’s government affairs committee. The AH&LA supports a further extension of TRIA, though for a period of 10 to 20 years. AH&LA also would support a measure to make the backup coverage provided by TRIA permanent. The Bush Administration, however, opposes another extension, preferring that the private sector— meaning the reinsurance industry— provide the needed coverage. While the rate of increase in insurance premiums paid by hotels overall has moderated somewhat in the past few years, premiums paid by hotels located in areas affected by hurricanes and earthquakes remain high. Indeed, because of the recent spate of hurricanes— including but not limited to Katrina— premiums skyrocketed in the affected areas and significant limits have been imposed on the amounts of insurance available to policyholders. “As a result, it really became a double blow for hotels that operate in catastrophe-exposed areas,” Marriott International’s senior vp for risk management, Brad Wood, told HOTEL BUSINESS®. Property and business interruption coverage have also bled into other lines of insurance. “It wasn’t just about wind exposure,” Wood continued. “If a hotel had any risk that was catastrophe-exposed, such as earthquakes or floods, it felt the effect. All these factors came together and we saw substantial premium increases.” Underlying this development is the fact that insurers have been more closely scrutinized by the financial rating agencies. The agencies, accordingly, have looked at the aggregate exposure individual insurers face, no matter what lines of coverage they fall into. “Insurers, in turn, are looking at the collective pool of policyholders they underwrite, which is why the situation has gone beyond just wind exposure into other kinds of coverage,” Wood continued. Almost two years post-Katrina, many multi-property hotel owners and managers report that they’re finding it difficult to obtain sufficient coverage when their portfolios include a high number of hotels in vulnerable areas. “Umbrella coverage can be very limiting in this regard,” said Norwalk, CT-based HEI Hotels & Resorts COO, Ted Darnall. “Probably 60% of our portfolio is located in either California, which is particularly vulnerable to earthquake damage, and Florida. Consequently, we have to think hard about acquiring any hotel in these markets because there is only so much coverage we’re going to be able to get.” The availability of insurance, therefore, has become a potential deal-breaker. “We look
