Hotels may recoup some coronavirus cancellation losses with parametric insurance

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Event organizers have been cancelling and delaying due to fears of COVID-19 spread.

Hotels with a new type of parametric insurance launched by Lloyd’s of London last year may fare better than other players in the events industry as coronavirus concerns spread.

Other players, such as event organizers, may not fare as well as this coverage won’t reach them.

The parametric insurance coverage compensates hotels when there is a drop in revenue per available room below a certain established point due to circumstances that could neither be predicted nor controlled. According to a Reuters report, the virus outbreak fits the criteria of unforeseen circumstances covered by this type of policy.

By the time of the writing of this article, none of the insurers selling this type of policy had offered specific details upon request regarding the product. Moreover, major hotel groups were declining the request to discuss their insurance coverage in the face of the virus spread.

That said, as some of the largest Lloyd’s insurers back the coverage, it suggests that it has been widely offered and potentially purchased, too. If this is indeed the case, it could mean that hotels will have some financial relief from mass cancellations occurring as a result of events cancelled due to COVID-19.

With parametric insurance is in place, hotels could benefit from notable protection from declines.

Analytics specialist STR’s data from its benchmarking platform for over 68,000 registered chains, individual properties and groups showed that mainland China’s revenue dropped 21.2 percent in January 2020 when compared to the same month in 2019. The origin of the outbreak, Wuhan’s, decline was even greater at 35.5 percent.

Since then, there have been measured declines in Hong Kong, Thailand, San Francisco and New York.

“We have seen a decline in performance across a number of markets because of the coronavirus,” said STR director, Thomas Emanuel in a Reuters report.

Hyatt Hotels has broadened booking change and cancellation waivers for travelers in a number of countries. Marriott has stated that it predicts a loss of about $25 million to its monthly fee revenue. IHG has been experiencing cancellations.

Parametric Insurance - HotelHotels and insurers alike rely on STR data to trigger a parametric insurance payout when an unforeseen event causes the revenue per available room falls below a certain level.

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