Hospitality and Natural Catastrophes

The challenging Property insurance market has impacted all industries, including Hospitality. Reinsurance renewal rates are up significantly, and capacity has shrunk due to the frequency and severity of catastrophic losses. As a result, insurers are passing these costs on to insureds, are more selective in deploying capacity and are reevaluating their appetite.

Wildfires Drive Up Insurance Premiums

Broker Randy Velin places insurance for many bars and restaurants in Montana, which has experienced a rash of wildfires year after year.

Although 2022 was a quiet season compared to previous years, according to the Montana Department of Natural Resources and Conservation, 2,063 fires still burned 124,997 acres throughout the state.1 One notable fire in 2022 near Flathead County was the Elmo Fire, which forced evacuations and destroyed eight structures. In 2021, more than one million acres burned, and over 113 structures were destroyed across the state.

"The wildfire exposure has some carriers backing away from writing in brush-fire zones while others are significantly increasing the cost of insurance," says Velin. "We can find a market, but it is much more expensive, sometimes even double the premiums, in these areas in the state."

Wind and Hailstorms

Property insurance in Texas is tough to place, according to Velin.

"In the northern part of the state, you have wind and hail exposures. In the Gulf, we have hurricanes. Any CAT-exposed risk is seeing a tighter market and higher rates," he says. "We had the Texas freeze in 2021 that resulted in significant losses from pipe bursts, with carriers taking a big hit on their combined ratios."

According to the Texas Department of Insurance, 510,772 insurance claims were filed in March 2023 after the freeze, with estimated insured losses pegged at a staggering $11.2 billion.2

Things aren't much better in South Dakota. According to national risk data from the Federal Emergency Management Agency (FEMA) and the National Oceanic and Atmospheric Administration (NOAA), South Dakota is among the top 10 states that experience hail events.3

"South Dakota has had constant hailstorms in the last few years, with carriers now including a 3%, 4%, or 5% wind/hail deductible for Property coverage," says Velin.

If an insured has a $5 million total insurable value (TIV) on a building with a 5% wind/hail deductible, for example, a $250,000 deductible will apply.

"We can offer a Deductible Buy-back provision for an additional premium, allowing an insured to reduce the deductible," explains Velin.

Liquor Liability, the Star of the Show

Liquor Liability exposure is front and center for restaurants, bars, taverns and hotels.

"We're seeing carriers pulling out of Texas, with insurers that continue to provide coverage performing greater underwriting scrutiny on accounts and raising rates," says Velin. "There's great deal of claims volatility in this space, with a legal environment favorable to plaintiffs."

Velin notes that clients in some states have a more challenging time than others obtaining coverage. "For example, Minnesota is a tough state to write Liquor Liability insurance, with very few standard markets available," he says. "Some standard carriers won't write accounts with more than 75% in liquor receipts unless their General Liability policies have Assault and Battery limits equal to the Liquor Liability limits. The higher percentage of alcohol receipts, the higher the rate."

Meanwhile, over in Arizona — a state with tough liquor laws — carriers are writing Liquor Liability insurance for super-clean accounts.

"Larger hospitality accounts with favorable loss history have an easier time obtaining coverage," says Arizona-based Underwriter James Ward.

"Most of these accounts have access to carriers that pair the Liquor Liability with the General Liability policy. These accounts are also usually purchasing excess limits. However, if a smaller operation has distressed loss history, coverage is much more difficult to place and more often than not is written on a monoline basis."

He adds, "When smaller accounts are distressed or have hazardous operations — such as bottle service, high liquor percentage, a dance floor or live music — they have far fewer options than a larger operation with the same set of problems. There's not as much premium in the smaller risks, so not as many carriers can justify the risk."

Underwriters look at various variables when writing Liquor Liability insurance, such as whether the establishment is in close proximity to a college or has live music, bouncers, happy hours, drink specials and other activities — even online activity — that will raise red flags.

"Each underwriter is different, and an old post or negative, disparaging reviews by disgruntled customers can result in a declination," explains Ward. "Agents should speak to their clients about reviewing their websites, social media platforms and Yelp reviews to see if what is being presented reflects their operation," Ward adds. "Any incorrect information should be cleaned up in order to be classified correctly and convey a narrative that is in alignment with their exposures."

As hospitality continues to bounce back, it's important to keep an eye on the sector's ever-growing list of unique exposures. RPS is here to do the research, so you can do what you do best: come through for your clients.

Contributor Information


1Heston, Kate. "2022 Recap: Quiet Wildfire Season Finished with $52M Price Tag," Bigfork Eagle, 28 Dec 2022.

2"Insured Losses Resulting from the February 2021 Texas Winter Weather Event," Texas Department of Insurance, 19 Sep 2022. PDF file.

3"Billion-Dollar Weather and Climate Disasters," NOAA National Centers for Environmental Information (NCEI), updated 8 May 2023.