Corporate travel’s resurgence is expected to balance a slowdown in leisure travel, but an increasingly uncertain environment—economic, regulatory and market-driven—will challenge hotel management to adopt robust enterprise risk management (ERM) strategies. Those who lean into these strategies will stand to gain a competitive edge in this dynamic landscape.
Building Resiliency Through Risk Management
Uncertainty defines the hospitality outlook in the new year. Regulatory shifts, economic volatility and climate impacts present complex risks. ERM adoption is growing across the industry to anticipate and manage disruptions. In places where weather-related losses are a perennial concern, aligning property maintenance plans with insurance requirements can bolster resiliency.
Hotel management should consider proactive steps not only protect assets but also improve attractiveness to insurance underwriters in a tough market. Comprehensive business continuity planning is another cornerstone of resilience, ensuring that properties can quickly recover from disruptive events.
Profitability Challenges Persist Amid Recovery
The North American lodging sector continued its rebound in 2024, with market revenues rising. RevPAR reached 121 percent of 2019 levels in certain regions and the average daily rate climbed to $155 compared to $130.50 pre-pandemic.
Yet, rising costs continue to pressure profitability. Labor shortages remain the most significant operational risk, with over three-fourths of U.S. hoteliers reporting staffing challenges in 2024. Wage increases, while necessary to attract talent, have outpaced those in other industries, further squeezing margins. Additionally, inflation-driven hikes in costs for food, linens and cleaning supplies compound these challenges.
Commercial auto rates are also expected to rise by 10 percent or more, posing difficulties for hotels offering shuttle services. Outsourcing these services or implementing telematics systems to monitor drivers can help mitigate costs and risks.
Hoteliers must develop proactive strategies. Creative cost management and targeted investments in workforce solutions can mitigate some of the profitability pressures. However, many hospitality businesses are not adequately insured to protect their margins, highlighting a gap in risk preparedness.
Technology: A Double-Edged Sword
Technological innovation continues to revolutionize the hospitality landscape, offering opportunities to enhance guest experiences and operational efficiencies. Contactless check-ins, self-ordering kiosks and AI-driven personalization are becoming industry standards.
However, technology also introduces vulnerabilities. Cyberattacks, such as QR code hacks, can disrupt operations and lead to significant financial losses. In 2023, the average cost of a hospitality data breach rose 13 percent to $3.36 million. Florida hoteliers must prioritize robust cybersecurity measures and align cyber insurance policies with industry-specific risks. Collaborating with brokers to address vulnerabilities before rolling out new technologies is crucial.
Workforce Vitality for Sustained Growth
Filling hospitality roles remains a daunting task. Improved wages have been a partial solution, but personalized benefits and workplace flexibility are becoming essential to attracting and retaining talent.
Over half of U.S. hotels adjusted work policies in 2024 to align with employee preferences. Workplace culture also plays a critical role. Toxic environments and poor management drive high turnover rates. For example, 37 percent of female and 14 percent of male restaurant workers have experienced harassment, while 53 percent of hotel employees have faced workplace aggression. Addressing these issues through manager training and robust anti-harassment policies can improve recruitment and retention.
Training programs that enhance employee productivity and readiness are equally critical. Hotel management should focus on de-escalation techniques, workplace violence prevention and mental health support to foster a vibrant and resilient workforce.
Navigating the Path Forward
To thrive, the hospitality sector must embrace strategic risk management, workforce engagement and technological innovation. Here are key steps to consider:
- Invest in resiliency: Implement long-term maintenance plans focused on reducing exposure to climate and operational risks. Demonstrate commitment to safety and sustainability through strategic property investments.
- Balance technology and security: Leverage technology to enhance guest experiences while maintaining robust cybersecurity protocols. Consult with experts to ensure technology adoption aligns with risk management strategies.
- Enhance risk management: Partner with brokers to develop tailored insurance strategies. Consider alternative risk financing options, such as captives, to navigate rising insurance costs.
- Prioritize workforce engagement: Develop benefits strategies that emphasize personalization and flexibility. Foster a positive workplace culture through training, mental health support and recognition programs.
By addressing these priorities, management can position their hotels for success. In a year marked by challenges and opportunities, resilience, innovation and proactive planning will define the industry’s winners.
Kimberly Gore is the national practice leader of HUB International’s Hospitality Specialty Practice. She has over 30 years’ experience in the insurance industry with a specialization in hospitality and tourism clients. Kim is responsible for a strategic approach to carrier relationships, specialization and best in class service to benefit each client. Kim is an active member of the insurance community serving as president of IIABHGC and as a board member for IIABSC and was awarded the South Carolina Young Agent of the year in 2010.
This article was originally published in the May edition of Hotel Management magazine. Subscribe here.