The Hotel Times - March 2008 - (Page 23)

INSURANCE OUTLOOK » BY ROBERT MANDELBAUM The calm before the storm? A ccording to the Uniform System of Accounts for the Lodging Industry, hotel insurance costs are classiﬁed as a “ﬁxed charge.” While insurance premiums are contractually ﬁxed, the annual changes in the price hotel owners have paid for insurance has varied greatly over the past 12 years. PKF Hospitality Research analyzed information from its Trends in the Hotel Industry database of 5,000 hotel ﬁnancial statements for 1996 through 2007 (estimate). In 1996, USALI changes mandated the movement of liability Hotel owners and operators will need to be more aggressive when negotiating their insurance contracts this year, or they take the risk of reduced coverage. insurance from the administrative and general department to the insurance line under ﬁxed charges. Now, insurance charges on a hotel operating statement reﬂect the expenditures for both liability insurance and building and contents coverage. During the 12-year period analyzed, signiﬁcant swings were observed in the year-to-year changes in the amount hotels pay for their insurance. In the late 1990s, hotels enjoyed declining insurance expenditures. Then during the early 2000s, hotel insurance costs escalated, spiking with a 33.1-percent surge in 2002. During the past four years, insurance costs have moderated. From 2004 through 2007 (estimate), the annual change in hotel insurance costs averaged 4.5 percent—roughly double the pace of inﬂation but equal to the pace of growth in hotel revenues. Fear of terrorist attacks, as well as a slowdown in the national economy, contributed to the huge increases in hotel insurance payments from 2000 through 2003. Conversely, healthy economics help to lessen or moderate hotel insurance costs. During the late 1990s and mid2000s, the value of investments made by insurance companies grew signiﬁcantly, thus lowering the pressure to increase the premiums charged to their customers. As the economy begins to slow in 2008, insurance companies may be pressured to improve their incomes by raising premiums. Hotel owners and operators will need to be more aggressive when negotiating their insurance contracts this year, or they take the risk of reduced coverage. hmm@questex.com Economy might pressure companies to increase premiums Robert Mandelbaum is director of Research Information Services for PKF Hospitality Research in Atlanta. United States hotel insurance expense by property type 2006 dollars per available room $1,600 $1,200 $800 4400 $0 Convention Resort Fullservice Limitedservice All-suite All hotels $1,090 $754 $267 $386 $737 $1,450 Source: PKF Hospitality Research www.TheHotelTimes.com March 2008 The Hotel Times 23 http://www.TheHotelTimes.com

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The Hotel Times - March 2008 Business Outlook Editorial Outlook Contents Conference Preview Capital Outlook What's Driving Growth? European Outlook Development Outlook Fractional Outlook Branding Source List Insurance Outlook Brokers Update Brokerage Outlook Lodging's Balancing Act Transactional Facts Lending Outlook Lenders Source List In Closing

The Hotel Times - March 2008

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