NATIONAL REPORT—It’s too late to prepare for natural disasters when they’re already on the move. Financial losses resulting from hurricanes can be devastating to properties without proper insurance. Plans are of no use to general managers if they’re not being practiced and improved upon. Having everything in order ahead of time is the only way to effectively protect a property—and even then, Mother Nature still controls the board.
“From an insurance perspective, hotels should ensure that their commercial property, windstorm, flood and business interruption coverages are in force,” said Jason Mazer, partner at Ver Ploeg & Lumpkin, P.A., an insurance coverage and bad-faith law firm based out of Miami. “They should also be prepared to document all physical damage to property and income loss in the event of a storm. Before and after photos or videos can be very helpful. Also, contractor, valuation and legal consultants should be at the ready.”
As far as what types of insurance hotels in hurricane-prone areas should consider, windstorm, flood and commercial property (including business interruption and contingent business interruption) are all worth examining. “Most issues concern the existence of physical damage to property and the period of restoration. Income for hotels can be largely seasonal, so property valuation of the loss is critical,” he said.
CBI (contingent business interruption) will also “indemnify for loss of income due to hurricane damage to a supplier,” Mazer said. For instance, if a hurricane wipes out a food supplier for a property’s restaurants, CBI will cover income loss due to lack of F&B. “We’ve had situations where there has been no physical damage to insured (hotel/restaurant), but the supplier couldn’t deliver due to damage,” he explained. Properties should also check policies for service interruption, meaning power loss.
Having established plans for hurricane season isn’t enough. Many properties either forget about them or choose not to practice them. Disregarded hurricane plans typically are outdated and designate individuals no longer with the company. More often than not, properties forget about plans after going through a period without any storms.
Christian Ryan, practice leader of U.S. hospitality and gaming at Dallas/Fort Worth-based Marsh, an insurance broking and risk management company, said properties should update their storm plans on an annual basis. There are two ways properties can practice: execute a tabletop exercise, where a property gathers everyone involved to discuss the plan and potential emergency scenarios; and deploy a stress test, where employees act and perform their roles as if an actual event is occurring. “Then we take lessons learned from that and improve upon it, where we don’t give the folks at the asset level the opportunity to spend a week preparing,” he said. “You stress test it, treat it like a real-life situation and learn from the mistakes there. A lot of our clients do that, and that’s been really where you can see the vulnerabilities that you have and opportunities for improvement.”
What should these plans include? Every company has its own standard operating procedures (SOPs) or standard operating guidelines (SOGs). Contracts with third-party vendors, disaster recovery firms and security contractors should be in place ahead of time. Plans should take into consideration different scenarios of operating and running a hotel after a storm. “The key that we stress is have a plan, practice the plan and improve the plan—and it’s a process of continuous improvement,” Ryan explained.
Calculating damages after a storm can be complex, which is why a property may bring on a third-party consultant. “In a nutshell, we would evaluate actual historical operating performance for the hotel prior to the event and do an analytical comparison to the competitive market,” said Rachel J. Roginsky, principal and owner at Pinnacle Advisory Group, based in Columbia, MD. “We could use this comparative method to replicate how a hotel would have performed during the event as one way to look at potential lost damages. We would also look at actual business on the books that was canceled during the event to assist with the analysis.”
There are other complications to consider when calculating damages—including lost occupancy, lost F&B revenue and other lost income. Additionally, there’s “the cost of marketing (telling the customer that the hotel has been repaired, depending on the extent of the damage), and potential future bookings (again, depending on the extent of the damage, the hotel may not be able to rebook business for a while),” she said.
Storms don’t always negatively impact properties. For instance, a property with only 60% occupancy before a storm may see a jump in occupancy after the passing of the storm, especially if the property’s “facilities are up and running and haven’t had any losses, but the surrounding area has been impacted,” Ryan pointed out. Adjusters, insurance companies and FEMA personnel all need places to stay for a longer duration.
It’s nearly impossible to fully protect properties from natural disasters (whether the storms are expected or unexpected) in vulnerable areas; however, preparing ahead can at least provide properties with guidelines to work with during potentially perilous times. “Essentially, a hotel is a mini city to some extent, so you need to make sure you can keep that mini city up and running after an event,” Ryan said. Preserving guests, employees and property is of the utmost importance—all deserving equal attention.
“The clients that really have a strong emphasis on plans, practicing them and kind of continuously improving them are the ones that typically have the best outcomes after a storm,” he said in an effort to stress the need for planning. “They know who to call, what to call for and they have proper contracts in place to mitigate their losses after a storm.” HB