Paralyzing blizzards, torrential downpours, and thousands of wildfires swept through California in 2022 and 2023, causing significant damage to both homes and commercial properties. Facing growing losses from these natural disasters, many insurance providers have sought to reduce their potential risk in the state, leaving many hoteliers scrambling to secure coverage for their properties. State Farm and Allstate are among the carriers who have announced they will no longer issue new property and casualty policies in California, citing “rapidly growing catastrophic exposure” due to climate change. Others have increased rates significantly: The Council of Insurance Agents & Brokers reported that commercial properties had the highest premium increase of all lines, at over 18%. A combination of increased disaster losses and rising property values were among the primary drivers of these increases. Tanner Douthit, Commercial Lines Manager at Petra Risk Solutions, said catastrophic events, inflationary effects, state regulatory policies, and dwindling capacity from insurance markets are all impacting the pricing for hotels and commercial properties. One property, Mine + Farm, The Inn At Guerneville in Sonoma County, has seen its rates increase of 272% over the last four years. “We have had zero claims during those four years,” said Bryce Skolfield, Managing Partner. “Our insurance costs are now over 12% of our gross receipts, well above the industry standard of 3%.” Besides being a tourism destination, Guerneville and the surrounding region has been a recent hotspot for wildfires, with the Sonoma Kincade Fire in 2019 burning 77,758 acres alone. “Fire danger gives people pause and concern on whether to visit, and impacts our inn’s operability and our communities,” said Skolfield. Mine + Farm strongly believes in pricing integrity and not just passing costs onto the guest. So, runaway insurance costs have a significant impact on hotel budget forecasting and force the property to divert funds away from infrastructure improvements and other operational needs. “Yet, finding a balance within these financial variables all while providing a wonderful guest experience at an appropriate cost is getting extremely challenging,” Skolfield said. Rate increases further threaten the financial viability for small hoteliers to weather the storm, increasing downward pressure on operations. Historically, “the insurance industry has proven to be cyclical,” Douthit said. “However, given the current landscape, we do not see significant improvement in the near future.” While larger corporate flags may possess the means to self-insure, the looming insurance crisis raises a critical question for these smaller properties: How can affordable coverage be secured amid a shifting insurance landscape? One approach is to work with a broker that can customize coverage and combine it with loss control services. That’s the strategy at Petra Risk Solutions, which exclusively insures the hospitality industry. Navigating the waters of an insurance renewal in today’s market is “treacherous, with little room for error,” Douthit said, and advises clients to start their insurance search early. “Don’t wait until 30 days from your renewal date to formulate a strategy, and continually review your loss analysis reports throughout the year to stay in front of claims,” he said. That’s especially true for small, independently owned properties, which may have policies that renew annually, given that the few insurance carriers remaining have had dramatic increases. Unless action is taken to balance consumer protections and insurance companies’ operability in California, Skolfield believes the collective impact may have negative economic reverberations for years on local communities. “It seems we are at a tipping point of losing independent businesses due to closure or only being able to function under the control of investment groups and corporations,” he said. When owner-operated hospitality properties close, “you lose a lot more than dollars in the local economy and product diversity.” AFTER FIRES AND FLOODS, THE INSURANCE DROUGHT 22 CALIFORNIA LODGING NEWS www.calodging.com INSURANCE
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