Hospitality insurance has skyrocketed, putting pressure on already struggling hotels

·4 min read

COVID-19's disastrous effects on Canada's hotel industry are well-documented, but as owners struggle to survive the pandemic, they are also battling a second crisis: skyrocketing insurance rates.

It seems counterintuitive, since hotels are serving fewer guests and many of their restaurants and lounges are closed, but hospitality insurance rates across the country have increased dramatically in the past year, putting more pressure on an already pinched industry.

Michael Mazepa, who is part of an ownership group for the St. Albert Inn and Suites, the Continental Inn and Suites in west Edmonton, and a Best Western in B.C. said rates doubled at two of the hotels, with insurance for each now costing more than $135,000 annually.

"It's a lot of money and you don't have the money rolling in," Mazepa said.

Dave Kaiser, president and CEO of the Alberta Hotel and Lodging Association, said in the past year, members have reported insurance increases of 100 to 300 per cent.

Most of the association's members were part of a large group of businesses from British Columbia to Ontario that pooled their resources to help stabilize rates. The system worked well for years, Kaiser said, but this year, the group failed to find an insurance company that would insure this kind of model.

The group turned to traditional insurance, but premiums went up, and in some cases, hotels failed to stay in the group or find insurance at all.

Jay Deol, who owns the Westgate Motor Inn in west Edmonton, said his annual insurance rate quadrupled this year, rising from about $8,600 to $34,000.

He can't afford the hike and said he was baffled because he has never made a claim.

Deol said he tried shopping around for another option, but could not find a company that would even give him a quote.

Why did rates rise?

Industry experts say hospitality insurance has become more expensive for several reasons.

The first is there have been more claims and losses in recent years. A recent report by Deloitte, relying on statistics from the Insurance Bureau of Canada, found that over the past 15 years, insurance loss ratios have climbed faster than premiums have.

On the property insurance side, water damage and catastrophic weather events like hail in Calgary and flooding in Fort McMurray have been costly for insurers. On the liability side, slips and falls have led to expensive lawsuits.

Recognizing this, some companies have stopped offering hospitality insurance, with the result being fewer players in the market and higher rates for hotels and restaurants.

The pandemic is exacerbating the problem.

"The lower the interest rates, the higher the insurance premiums because insurance companies can't make money on the investment behind the scenes," explained Brett Kanuka, marketing director for CMB Insurance Brokers in Edmonton.

Pandemic-related closures and suspensions in the hospitality sector have also meant fewer hotels and restaurants are paying into the pool of money that covers losses.

Experts say the issue is global and goes beyond hospitality insurance — condominiums, shopping malls, recycling plants and school districts are also struggling to pay for higher rates.

"We're not immune to some of the events that are happening around the world," said Rob de Pruis, a director of consumer and industry relations for the Insurance Bureau of Canada.

Some hotels ditch property insurance

Some hotel owners who can't afford the increases are choosing to accept the risks that come with reducing coverage.

Kaiser said he is aware of hotels foregoing property insurance and only paying for liability.

"To me, that's very scary," said Nona McCreedy, owner of Aurora Underwriting Services in Edmonton.

"It must make it difficult for them to sleep at night because they're suddenly taking on that risk themselves."

Though hotel owners cannot do much to prevent catastrophic weather events, they can ramp up their risk management systems in an effort to avoid making claims.

At Mazepa's hotels, staff are checking rooms for damage weekly, even if they are not occupied, and Kaiser said risk management education and training will be a key focus for the hotel association going forward.

Helping businesses find insurance

In the meantime, there are efforts underway to help companies that have been unable to find insurance.

The Insurance Bureau of Canada launched a business insurance action team in December to help connect hospitality businesses in Ontario with insurance companies. The pilot project may expand, if demand persists, to other parts of the country.

For companies like Echelon Insurance, the problem presents an opportunity. In the fall the company expanded its commercial insurance offerings for small and medium-sized hospitality businesses in Ontario and as of Jan. 1, it has made those available to companies across Canada.

"We are definitely hearing the noise from some businesses and brokers, which tells us that there's a need for this particular coverage because there's a gap in the industry," said Echelon Insurance president Robin Joshua.

Experts say that with rates likely remaining high for at least another year, business owners should scrutinize their policies, go over them in detail with brokers and look for opportunities to reduce coverage or increase deductibles.

"Most of us are really trying to do the best we can for the insured and get them the fairest price possible," McCreedy said.