Insurance and Sustainable Hospitality: Enabler, Obstructor or Game Changer?

Dan Ruben

Director, How to Green Your Hotel

Properties should take resilience measures not just to lower insurance premiums but also to keep their doors open and stay in business. Insurance companies can protect their own profits and keep their customers by offering lower premiums to owners who better protect their properties.

Insurers can incentivize owners who have properties vulnerable to flooding to: elevate entrances, install permanent or on-demand flood barriers, place vulnerable equipment above 1000-year flood levels, and develop effective natural and man-made drainage systems.

They can incentivize owners of buildings with high wildfire risk to incorporate fire-resistant building materials and create a buffer around their buildings.

Owners of vulnerable properties could also encourage government to protect their neighborhoods. For example, coastal hotels and resorts might advocate for preserving and repairing ecosystems (reefs, mangrove forests, oyster beds, etc.) that reduce coastal flooding, and erect barriers from the rising sea.

Greg Poirier

MBA, Global Director, Hospitality Certification Programs, Audubon International

While I would like to suggest that there is a massive "Game Changer Opportunity" presented here in accelerating sustainable best practices though engagement from the Insurance Industry, that is going to have to wait and see what comes unless someone has more information related.

I recently certified a property that in its construction phase and by design mitigated flooding by bringing back the resort grounds to its all-indigenous fauna and natural contours prior to construction, ripping out and replacing thousands of plants to do so, and elevating a walkway to protect and encase that natural flood mitigation contour that had evolved over millennium. This Forbes 5 Star rated resort sits on the Atlantic Coast on Bahia Bay in Puerto Rico and is home to the St. Regis, Bahia Beach Resort, a property who just earned our highest certification available, Platinum. That should certainly provide an insurance discount as they have survived quite a few hurricanes related flooding events since construction with no flooding to date, unlike their neighbors.

While an extraordinary example and property, in fairness my view is more for all of the sites today deploying best operational sustainable practices without that kind of mindful construction back in its development construction phase. That would account for the vast majority of hotels and resports globally today.

I do see the rationale to offer and incentivize that kind of engagement more aggressively from the Insurance Industry so perhaps they are the enablers in waiting too. This would presents yet another triple play opportunity for following sustainable best practices, if when insurance premiums were discounted for properties with a certified Green practice in place. More business for such leaders in the insurance industry, lower operating costs for hospitality businesses, and pick from several options to round out the three in triple play - People, Place, & Planet!

Johanna Wagner

Co-Founder of La Belle EDuC, Founder of Upside Up Hotel Asset and Guest Lecture at ESSEC MSc in Hospitality Management (IMHI)

To fully embrace their role as enablers and game changers, insurance companies could focus on two aspects that would make a difference in the way hospitality professionals make decisions. 

The first one is the availability of data about present and future risks (catastrophic events…) and their correlation with some hotel features (construction materials, construction year, location of technical equipment in the building…). Currently, national figures or general real estate figures don't allow for proper assessment of risks for the hospitality sector. It's therefore difficult to make a strong case about the vulnerability of some properties. With the emergence of new risks and the aggravation of some others, this type of data could be a game changer.

The second one is the implementation of financial incentives associated with some investments and installation of equipment to make their ROI more attractive. When such investments make a difference with regards to the adaptation of the asset to future phenomena, it would make sense both for the insurance and the hotelier to reflect their benefits in a financial incentive. These incentives would play as enablers for a shift in perspective with regards to investments which would not only be "green" but also "protective".

Willy Legrand

Professor at IU International University of Applied Sciences Germany

Climate risk makes things uninsurable. No insurance makes things unmortgageable. No mortgages crashes the property markets. Crashed property markets trash the economy. ^[1]

This quote from US Senator Sheldon Whitehouse summarizes the situation concerning insurance.

Practically, the way insurances respond to increased risk is by raising insurance costs or, in some cases, decline insurance altogether. And as mentioned in the viewpoint, we have seen increased insurance premiums, for instance, insurance expenses averaged USD 939 per available room (PAR) across all hotel types in the US, with rates peaking at USD 2,464 PAR for resorts^[2]. Traditional risk assessment models used by insurers might not fully recognize the long-term benefits and reduced liabilities of sustainable practices, and this is where we see then higher premiums or, as mentioned already, outright denial of coverage.

Improving Collaboration Between Insurance and Hospitality Sectors

To foster a greater collaboration between the insurance and hospitality sectors, both sectors must engage in understanding mutual benefits of sustainability. Insurance companies can work directly with hospitality businesses to develop clear guidelines and standards for what constitutes ‘sustainable’ infrastructure, thus simplifying the process of qualifying for incentives.

Incentives for Hotels to Invest in Sustainability

Tangible incentives are important to hotels in adopting sustainable practices. So reduced premiums for properties with certified sustainable status, discounts for upgrades that enhance sustainability performance, and lower deductibles for risks mitigated by adopting sustainable technologies are such incentives. For instance, properties with clear decarbonization actions, with recognised nature restoration practices or similar activities should qualify for lower premiums. This acknowledgment incentivizes investment in sustainable technologies and protective measures against climate-related risks. Tailored insurance products that specifically cover sustainable investments can also motivate hotels to undertake investments. Risk re-evaluation should be on-going based on the adoption of new technologies direct at climate mitigation and adaptation.

Managing ‘risks’ should be directed at making hospitality (and society) more resilient, not less.

^{[1] Elbein, S. [October 25, 2024]. Climate change reshapes cities, both environmentally and financially. https://thehill.com/future-america/future-of-cities/4934071-cities-climate-change-insurance-heat-waves/}

^{[2] CBRE. (2024). Hotel Insurance – A Rising Expense With Limited Control. https://www.cbre.com/insights/briefs/hotel-insurance-a-rising-expense-with-limited-control}

Trevor Girard

Director of Standards, Hotel Resilient

Traditional insurance models focus on immediate risks and often overlook long-term sustainability benefits. To better incorporate these benefits, insurance companies could adopt risk assessment models that value long-term investment in resilient and sustainable practices. This approach is discussed in the "Risk Sharing for Loss and Damage" report, by the University of Cambridge Institute for Sustainability Leadership (CISL), which suggests enhancing risk models with parameters that account for and encourage proactive resilience and sustainability measures, thereby reducing the overall risk profile of portfolio members.

A summary of steps needed are:

Quantify Resilience & Sustainability Benefits: Introduce parameters in risk models that quantify reduced risks due to improved resilience to natural hazards, climate adaptation and environmental stewardship.

Offer Insurance Incentives: Provide reduced premiums or improved coverage terms for hotels implementing resilient and sustainable measures, e.g., reliable infrastructure, effective disaster planning, energy efficiency, sustainable resource use, climate resilience, etc.

Establish Risk-Sharing Mechanisms: Consider implementing risk-sharing mechanisms that reward risk reduction measures, similar to donor-supported premium reductions in risk pools.