The Oil Spill and Hotel Guarantee Programs
As oil from the Gulf of Mexico’s spill inched toward land, hotels along the Gulf became increasingly nervous. By the beginning of June, hotels were already reporting higher cancellation rates and more vacancies during peak season than ever. Amid increasing media coverage and high speculation on not if, but when the oil would make landfall, two hotels in Key West made a pre-emptive move – they are offering guests a clean beach guarantee.
Both the Casa Marina Resort Reach Resort in Key West have seen a 50-percent drop in reservations after the announcement of oil balls found on area beaches. Despite the oil being from some other source, the media coverage was such that travelers are avoiding Gulf resorts. It’s why the hotels have decided to offer the guarantee, which promises to refund hotel room rates and taxes (minus any food and beverage charges) should the oil slick somehow reach the shores and cause damage. They’ll also waive their standard 72-hour cancellation policy should any oil-related event occur.
The month of May brought with it some serious issues for hotel owners in both Nashville and Manhattan. Flooding forced hotels to evacuate guests in the Nashville area while a bombing attempt emptied hotels in the Times Square vicinity. Proof once again that you can’t pre-plan for the unexpected soon enough.
No one needed to tell those of us in the hotel insurance industry that insurance rates were increasing steadily. So it comes as no surprise that an August 2009 study by PKF Hospitality Research reports that insurance costs are the fastest growing expense for hoteliers. Over the last ten years, rates have gone up 4.4% annually. From an average $265 per room in 1999 to $558 in 2004 (the latest PKF Hospitality study examined today’s recessionary period with that of the 2001-2003 period). It’s not likely to get better, either. PKF also predicted an estimated 5.3% drop in net operating income and a 1.1% decline in RevPAR for 2010.
As hoteliers put to rest a year of upheaval, uncertainty, and financial strain, the predictions are already in for 2010. A PKF Hospitality Research study shows that despite the industry facing an uphill battle, occupancy rates are expected to rise 0.4 percent in 2010. Okay, not great news – occupancy levels fell an average of 8.9 percent in 2009. But the ever-so-slight increase means one thing for anxious hoteliers – the modest increase is the first year-over-year increase in the last eight quarters.
As mentioned previously, a number of hoteliers are facing nonrenewal notices and scrambling to locate acceptable coverage. A major carrier has decided to pull out of the hotel/motel business, leaving thousands of insureds searching for another carrier. Agencies handling these policies are forced to halt any new business marketing as they themselves go on a search for a credible, stable replacement for their policyholders’ business insurance.