What was once a line item can now decide a deal. Whether it was displayed on a bingo card, in a crystal ball or straight out of left field, few investors would have predicted the once-routine expense of insurance would become such a powerful deal consideration.
But here we are.
“Insurance has moved to a priority as the swings in costs year over year can move debt service coverage ratios below the thresholds,” says Chad Eschmeyer, executive director of hotels for JLL Value and Risk Advisory. “It can now be more of a deal lever than in past years.”
By 2023, CBRE noted that insurance was the hotel expense category with the largest percentage increase. Through September of that year, insurance costs for hotels in the firm’s monthly survey sample rose 19.5 percent over 2022, outpacing both total revenue growth and overall expense growth. During the same period, hotel revenues increased 7.4 percent, while total operating expenses rose 10 percent, contributing to a slight decline in EBITDA.
It’s only gotten worse from there. Risk Strategies’ 2025 hospitality insurance market report found hotel operators are experiencing property insurance rate increases of 17 percent to 26 percent on average, depending on the state. For high-risk locations, older buildings and businesses with recent claim losses, those increases often climbed to 50 percent or more.
As premiums rise, so, too, have the stakes.
“Rising premiums and deductibles directly increase operating expenses, which compress margins and can make otherwise attractive assets pencil out differently — or not at all,” says Kimberly Gore, national practice leader of global insurance brokerage Hub International’s hospitality specialty practice. “Insurance costs have become a much more significant line item in underwriting a deal, and investors can no longer treat them as an afterthought.”
Rewriting the underwriting
The current level of insurance volatility is forcing many investors to take a more conservative approach when it comes to underwriting. Today, insurance isn’t simply a number that can be carried over from the seller’s prior-year expenses or estimated late in the purchase process. Instead, it must be factored in early – and in many different ways.
“Less certainty with this expense means multiple scenarios are being run for underwriting assumptions, and best-case-only underwriting is not an option,” Eschmeyer says.
That volatility can certainly impact a refinancing. If insurance costs push debt service coverage ratios below lender thresholds, ownership may need to bring additional cash into the deal to satisfy lender requirements.
“It can also extend a hold period as eroding margins – due, in part, to insurance costs – may cause potential buyers to be warier of an asset’s future cash flows,” Eschmeyer adds. “Then an asset becomes ‘sticky’ and far less liquid.”
Geography is also entering the insurance conversation earlier. Florida and California remain obvious areas of concern due to storm activity, wildfires, mudslides, earthquakes and other unpredictable events. Eschmeyer points to the Carolinas, Gulf markets, Texas and parts of the Midwest, including Oklahoma, Missouri, Kansas, Illinois and Indiana, as additional areas to watch.
Asset type also matters. Luxury resorts, historic properties and beachfront hotels are among the most affected by rising insurance costs due to higher replacement costs and risk exposure. Extended-stay hotels, exterior-corridor motels and properties with high-liability amenities, such as pools, water parks and bars with liquor service are also drawing closer scrutiny from underwriters.
“And property condition matters more than ever,” Gore adds.
This includes assets with older roofs, aging plumbing or outdated HVAC systems.
“They’re red flags for underwriters, and owners who haven't kept up with capital improvements are finding it harder to secure competitive terms,” she continues.
Lender and franchise requirements add a further layer of complexity, Gore notes, as both often mandate specific coverage levels that can be difficult or expensive to meet in tighter markets.
Managing the cost of risk
Since lender and franchise requirements – and geography and asset types – aren’t likely to disappear anytime soon, the only prudent strategy today’s investors are left with is to improve an asset’s risk profile.
“For larger, diversified operators, there is the potential to package higher-risk assets into portfolios, spreading the risk,” Eschmeyer says, while noting that layering coverage and developing risk-mitigation plans are other trending options.
When it comes to higher-risk properties, he recommends incorporating risk-mitigation plans into property improvement plans to better position the asset for longer-term savings.
Gore believes owners should get proactive about the basics. She encourages owners to invest in risk mitigation during new construction and renovations, maintaining a disciplined maintenance plan that keeps roofing, plumbing, HVAC and life safety systems current – but they shouldn’t stop there. The most important step has yet to come.
“Document all of it,” she says. “Because underwriters respond to evidence that a property is well cared for. They want to see the property is being managed with intention.”
Hiring practices, employee training, safety procedures and management culture can further reduce liability exposure and signal a stronger operating environment to carriers. Technology can also help, especially leak detection systems, building monitoring tools and cybersecurity protocols.
“Owners who leverage [technology] thoughtfully can demonstrably reduce their risk profile,” Gore says. “Ultimately, insurability is earned over time through consistent, proactive management, and the owners who treat it that way tend to be in a much stronger position at renewal.”
Another important item to consider is that all this advice applies whether a property is viewed favorably or unfavorably by underwriters. That’s because there is no immunity in this high-cost environment. Instead, everyone’s feeling the pinch. The difference is how much owners can do now to ease the squeeze before their next renewal.
“Even hotels with clean claims histories are feeling the impact because the broader risk environment is affecting premiums for all properties, contributing to tighter reserves, more conservative debt sizing and longer closing timelines,” Eschmeyer says. “No property is completely insulated.”